[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
COUNTERING CHINA ON THE WORLD
STAGE: EMPOWERING AMERICAN
BUSINESSES AND DENYING CHINESE
MILITARY OUR TECHNOLOGY
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HEARING
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
MARCH 21, 2024
__________
Serial No. 118-111
__________
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
56-650 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
C O N T E N T S
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Page
WITNESSES
Fernandez, The Honorable Jose W., Under Secretary for Economic
Growth, Energy, and the Environment, U.S. Department of State.. 6
Estevez, The Honorable Alan, Under Secretary of the Bureau of
Industry and Security, U.S. Department of Commerce............. 14
APPENDIX
Hearing Notice................................................... 63
Hearing Minutes.................................................. 64
Hearing Attendance............................................... 65
STATEMENT SUBMITTED FOR THE RECORD FROM REPRESENTATIVE CONNOLLY
Statement submitted for the record from Representative Connolly.. 66
RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD
Responses to questions submitted for the record.................. 69
COUNTERING CHINA ON THE WORLD STAGE:
EMPOWERING AMERICAN BUSINESSES AND DENYING
CHINESE MILITARY OUR TECHNOLOGY
Thursday, March 21, 2024
House of Representatives,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10:26 a.m., in
room 2172, Rayburn House Office Building, Hon. Michael McCaul
(chairman of the committee) presiding.
Chairman McCaul. The Committee on Foreign Affairs will come
to order. The purpose of this hearing is to assess how the
Biden Administration is keeping sensitive U.S. technology from
foreign adversaries like China while opening markets for U.S.
companies and other countries. I recognize myself for an
opening statement.
It should come as no surprise that this committee is
holding once again a hearing on export controls. It's one of
the most important things we do in our jurisdiction. They are
essential to countering our adversaries, especially China, as
they were to defeating the Soviet Union.
During this Congress, this committee has already passed
four bipartisan export control bills, and we plan to do much
more. As the CCP expands their surveillance State and war
machine, it's critical we stop selling our sensitive technology
to them and to other adversaries. We are now witnessing a
troubling trend where our adversaries use American components
and their weapons and their surveillance systems.
One need look no further than the CCP's spy balloon that
surveilled some of our most sensitive military sites. It was
widely reported they used commercially available American
technology. We're beyond the point of a wakeup call.
American adversaries are using American innovation to
undermine U.S. national security interests and our allies and
democratic values. BIS, while within Commerce Department, is
within this committee's jurisdiction. And we've been working
very closely with Mr. Estevez to use its extensive authorities.
As was pointed out in my 90-day review the BIS released
last December, these authorities are vitally important to
securing our national security. While some positive action has
been taken by the Administration to restrict advanced chips in
chip making equipment to China, more I believe must be done.
For instance, reports indicate that the United States did
secure a deal with Japan and the Netherlands to apply similar
export controls on chips which I was fully supportive of and
helped assist with.
But while this agreement is promising, it still largely
allows Japan and Netherlands to service and to sell tools to
China for chip manufacturing, I guess based on future
contracting. Mr. Estevez, you are in charge of BIS. And this is
a very important job at this time in history.
And we want to work with you and support you in your
effort. Chairman Xi wants a military capable of invading
Taiwan. Every day, I hope you wake up and ask yourself how you
will use export controls to deny China's military access to
U.S. innovation and capabilities.
And while we work to keep American technology out of our
adversaries' hands, State needs to do more to work with our
partners and allies to open new markets to American companies.
We must remain competitive, have a global footprint, and use
soft diplomacy to counter China's Belt and Road. Mr. Fernandez,
I hope your testimony today will reflect that as your primary
goal.
My bipartisan Championing American Business Through
Diplomacy Act aimed at opening markets for U.S. companies. And
I'm concerned that some of the aspects of that law may not be
implemented as fully as it could. We need that for great power
competition. I'm also concerned the White House is either not
listening to our diplomats or not being told what harm their
actions are having on the U.S. economy.
The President's recent decision to ban LNG export permits
is a perfect example of a policy that harms U.S. business
interest and U.S. foreign policy. After all, it was American
LNG that kept the lights on in Ukraine after Russia's full
scale invasion. I led the effort to sanction Nord Stream 2.
I never imagined a President would waive those sanctions,
allowing Russian energy to--and Europe to be dependent on
Russian energy. But it's been American LNG that's helped Europe
divest from Russia. American energy is the cleanest energy in
the world.
And we take that option off the table, I think we're
hurting ourselves and the world and putting that into the arms
of China. And their energy is not clean. In fact, it's dirty.
Finally, just on the issue of Iran, I know Mr. Fernandez is
not in your jurisdiction. But when we see an Administration not
enforcing sanctions on energy coming out of Iran being sold to
China to the tune of 80 billion dollars that then goes into
funding their terror operations, that's an energy policy that
makes no sense to me at all. And I know we'll talk more about
that.
I know that's not within your purview. But I just say that
in this public hearing that something has to change on that. So
with that, I now recognize ranking member, Mr. Meeks.
Mr. Meeks. Thank you, Mr. Chairman, for holding this
important hearing. And thank you to our witnesses today for
appearing before us. We're here to discuss how to effectively
use economic statecraft as a tool to compete with China.
Now this is a critical topic because Beijing is intent on
evading international rules and using economic coercion against
nations big and small to advance its interests. To ensure that
we are successful in this competition, the United States must
lead, must be pragmatic, and must invest in the core strengths
of America at home and abroad. And if we are serious about
competing with China, then we must actually compete.
We know the billions of dollars Beijing is pouring into the
Belt and Road Initiative. We know that last year Beijing
increased its diplomatic budget by 12 percent. But how are the
United States responding?
Unfortunately, the Republican House majority has proposed
cuts to the budgets for the State Department and for U.S.
foreign assistance. That's not leading. That's not competing.
That's not being present where we need to be present. The
world must view the United States as a credible partner of
choice when it comes to foreign investment, development,
assistance, and clean energy and infrastructure financing. To
do that, the United States must scale up initiatives like the
partnership for global infrastructure and investment in
Development Finance Corporation and adequately fund the State
Department, USAID, and BIS.
Republican budget cuts will only tie our hands, undermine
our ability to compete with China, a nation that will ask,
where are you, United States, as China continues its presence.
If we're going to effectively compete with China, we also need
an affirmative trade an investment agenda. And I believe the
Biden Administration's Indo-Pacific economic framework is
critical for keeping America engaged economically and the Indo-
Pacific so that China does not replace us as the economic
partner of choice in Asia.
As we compete with China, we must also affirm our national
security interests. The Biden Administration has imposed
unprecedented export controls and outbound investment
restrictions against China to ensure that the American dollars
and technology aren't helping China develop military
capabilities. In our discussion today, I hope we can talk about
how to maximize our export controls in concert with partners
and allies to make these actions even more effective.
And as we strengthen technological security, we must invest
in research and innovation here at home so that we position
American industry to be globally competitive and create the
jobs of the future for American workers. The work done by this
Administration alongside Congress to pass the CHIPS and Science
Act and the Inflation Reduction Act will ensure that America
excels in the semiconductor and clean energy industries, both
of which China is intent on dominating. These investments at
home must also match with investments in our unique strengths
abroad, our alliances and partnerships, whether it's re-
energizing NATO, launching the foundational AUKUS partnership
with Australia and United Kingdom, or hosting a historic
trilateral summit between the United States, Japan, South
Korea.
President Biden has revitalized our alliances. In addition,
the Administration has advanced shared interest in the region
through results or initiatives like the Quad, the Minerals
Security Partnership, and the Indo-Pacific Economic Framework
for Prosperity. Under President Biden, it is not America First
or America Alone.
It is America back at the table, marshaling a united
response to the PRC's coercion and aggression. Finally, and
this is critically important, we must ensure that our
competition with China does not slide into conflict. And that's
a lose-lose scenario.
Too often in Congress, I see my colleagues trying to outdo
each other on who is the bigger, China hawk. We've seen
Republicans attack General Milley who was before our committee
earlier this week simply for engaging with his Chinese
counterpart to prevent unnecessary conflict. I, for one, sleep
better at night when I know the lines of communication are open
and one mistake and one accident does not lead to an all-out
conflict.
We need both deterrence and diplomacy to keep peace. The
Biden Administration through tough but pragmatic approach is
already paying dividends for the American people with the
Chinese committing to work with us on addressing fentanyl
trafficking and already acting on that commitment. This can
save American lives.
If we act alone, it will escalate tensions. If we do not
live up to our values, then we will alienate our partners
instead of isolating China. So I look forward to a spirited
discussion today about how American can lead--continue to lead,
continue to build the world's strongest economy, and continue
to bring nations together in the defense of peace and shared
prosperity. And with that, I yield back.
Chairman McCaul. The gentleman yields. We're pleased to
have today here Hon. Jose Fernandez, Under Secretary for
Economic Growth, Energy, and the Environment at the U.S.
Department of State and Hon. Alan Estevez, Under Secretary of
the Bureau of Industry and Security at the U.S. Department of
Commerce before us here today. Your full statements will be
made part of the record. I now recognize Under Secretary
Fernandez for your opening statement.
STATEMENT OF JOSE FERNANDEZ, UNDER SECRETARY FOR ECONOMIC
GROWTH, ENERGY, AND THE ENVIRONMENT, U.S. DEPARTMENT OF STATE
Mr. Fernandez. Thank you. Thank you, Chairman McCaul. Thank
you, Ranking Member Meeks and members of this committee for the
opportunity to speak before you this morning.
Our focus today is on countering the People's Republic of
China on the world stage and empowering U.S. businesses to
compete internationally. And I'm lucky. I'm lucky to lead a
team of some 1,500 economic offices located in almost every
country on the planet who'll advance the Administration's
economic stagecraft agenda and leverage U.S. global leadership
to strengthen our domestic economic.
We're more effective today than ever before in promoting
U.S. businesses. And we owe much of that to this committee.
Chairman McCaul, in 2019, you helped pass the Championing
American Business Through Diplomacy Act, CABDA, to recognize
the important role of commercial diplomacy and promoting U.S.
prosperity in competing with the PRC. And I look forward to
updating you on its implementation.
In addition to promoting U.S. businesses, we also have to
confront the PRC's predatory practices. We're making good
progress. And what I'd like to do is to give you three quick
examples of that progress.
No. 1, we are addressing vulnerabilities and critical
minimal supply chains. Almost a year and a half ago, I launched
the Minerals Security Partnership to confront this challenge
with key foreign counterparts. And we now have 14 partners plus
the European Union collaborating to find critical mineral
projects and to bring them to market.
For example, the MSP has announced just recently milestones
on six projects in every continent, ranging from extraction to
processing to recycling. The MSP now has a pipeline of 23
projects, and our engagement will ensure that critical minerals
are extracted, refined, and recycled in ways that benefit all
of the countries involved. The second example I'd like to note
is that thanks to Congress, we're using the CHIPS Act.
The CHIPS Act's International Technology Security and
Innovation Fund, to rewire global semiconductor value chains.
Already 18 months after enactment, the ITSI program has become
a new center of economic gravity. We've announced ecosystem
reviews for Costa Rica, Panama, Indonesia, Vietnam, and the
Philippines.
And other nations are asking us whether they can be
considered. And in fact, some are taking on the hard work
themselves. We're leveraging ITSI funding to create a broader
semiconductor ecosystem and to maximize the pull factor, and
we're starting to see results.
The third example I'd like to note is combating PRC
economic coercion which I know is of interest to this
committee. This is one of my highest priorities. And I'm
grateful for this committee's leadership on the issue.
When partners face coercion, we are willing and we're able
to help. I led the effort to support Lithuania almost 2 years
ago which faced PRC trade based retaliation for opening a
Taiwan office. And I used that case to develop a toolkit to
directly support other countries facing PRC coercion.
Today, Lithuania has survived the PRC's pressure, and it is
not looking back. We have also coordinated with G-7 countries
to ensure that when the next case happens, we're ready. In
closing, I'd like to just summarize that we are leveraging
every diplomatic tool that we have to bolster U.S. economic
security.
But we also need to deploy concrete resources to level the
playing field enough to get our companies in the game. And
that's why the Biden Administration last week released an
Fiscal Year 2025 budget with a plan to effectively compete with
the PRC. This request will allow us to continue to invest in
the foundations of our strength at home, align partners and our
shared interest, and tackle the challenges posed by the PRC.
We can compete and we can win. But we need Congress'
support to do it. Thank you, and I look forward to your
questions.
[The prepared statement of Mr. Fernandez follows:]
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Chairman McCaul. Thank you, Secretary Fernandez. I now
recognize Under Secretary Estevez for his opening statement.
STATEMENT OF ALAN ESTEVEZ, UNDER SECRETARY OF THE BUREAU OF
INDUSTRY AND SECURITY, U.S. DEPARTMENT OF COMMERCE
Mr. Estevez. Chairman McCaul, Ranking Member Meeks, members
of the committee, it's my honor to testify before you once
again on the importance of export controls to protect U.S.
technology from adversarial countries. And yes, Chairman, I do
wake up every morning and say what can I do with export
controls to protect America. Export controls are a key tool in
addressing national security and foreign policy concerns
related to countries of concern, including the People's
Republic of China, Russia, Iran, and North Korea.
It's clear this committee understands that importance as
this will be the eighth time that I or the two Bureau of
Industry Security Assistant Secretaries have testified before
this committee in the last 2 years. I think that's a record for
BIS. The Bureau of Industry and Security has operated for
decades at the nexus of national security, technology, and
commerce.
However, given today's threat environment combined with
rapid technological change, our tools are more important than
ever in protecting national security interest of the United
States and our allies. We have used our export control tools
extensively in the Biden Administration. For the PRC, we have
implemented sweeping strategic countrywide controls on key
critical technologies.
These include advanced computing chips needed to power
artificial intelligence for military and supercomputing
applications as well as the semiconductor manufacturing
equipment essential to producing those advanced chips. This
countrywide approach is important because we are clearly
identifying strategic sectors and items and setting clear lines
on technological capabilities. Additionally, key allies have
implemented similar controls for many of these items.
These technology-based multilateral efforts enhance our
existing extensive countrywide restrictions and are most
effective in addressing our national security concerns related
to the PRC. We continue to add PRC parties to our Entity List,
in fact, adding more than 300 entities in this Administration.
These actions help to backstop our technology based controls by
denying PRC entities access to predominately commercial items
that could be used for military applications or human rights
abuses.
BIS has also taken extensive action in concert with 38
allies and partners to impose extensive export controls in
response to Russia's full scale invasion of Ukraine. This
multilateral approach has imposed increased costs on Russia and
forced them to rely on pariah states like Iran and North Korea
for weapons. Russia has also been forced to expand resources,
create networks to evade our controls.
In response, we have implemented new controls targeting
Iran and entities throughout the world who are violating our
restrictions. We continue to act strongly with our allies and
partners to detect and disrupt those networks. And we are
working with industry to enhance due diligence to detect
efforts to evade our controls.
While this work is important, I want to be clear. The most
important step we can take right now to help Ukraine is to
provide funding to support their fight. New funding along with
other tools in our toolkit will continue to impose costs on
Russia and those who seek to support Putin's unjustifiable
actions.
And while I recognize this hearing is about China, let me
be clear. China is watching our actions and our willingness to
stand up against illegal aggression. Helping Ukraine is also
about China.
Finally, speaking of funding, BIS has been asked to do more
than ever in this era of strategic competition to address our
national security and foreign policy concerns. To sustain our
current pace and effectiveness, there are few realities that
this committee should consider. BIS' budget for core export
control functions has remained essentially flat since 2010,
when adjusted for inflation.
BIS's law enforcement arm employs only approximately 150
agents to counter the threat posed by nation State actors. Our
licensing workload has doubled from approximately 20,000 per
year in 2012 to over 40,000 per year now. And the licensing has
become more complex as our rules have become more complex.
Our staff is relying on antiquated systems for both license
adjudication and enforcement work that were put in service in
2006 and 2008, respectively. We look forward to continue our
constructive work with this committee to ensure that BIS has
the resources and policy support needed to continue its mission
critical work. I look forward to your questions.
[The prepared statement of Mr. Estevez follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman McCaul. Thank you, Mr. Estevez. I recognize myself
for 5 minutes for questions. On that issue--and look, in this
Congress, we're trying to cut budgets for the most part.
But your mission is hugely important. And you and I visited
many times. Your ability to stop technology from going to China
but also outbound capital flows is extremely important. So if
you have resources to request, please provide that to this
committee.
I know you have OMB. But tell them that I've asked you to
report to this committee on what the resources are that you
need to do your job because I believe it's one of the most
important ones. When you look at the hypersonic weapon that had
American component parts it, the spy balloon, we have to stop
exporting this technology.
And then when it comes to outbound capital flow, same
thing. I mean, the old school of thinking was to sanction a
company and how that that would work or hope that Treasury
would even sanction a company. And even if they did, they could
change the name of the company overnight and the sanction has
no force and effect.
You and I talked about this sector-based approach, AI,
quantum, hypersonics. Can you explain to this committee why
that approach is superior to the old fashioned approach of the
OFAC Treasury sanctioning a company only to see it change its
name overnight?
Mr. Estevez. Thank you for that question. And I appreciate
your support for our funding. As you know, I come from a place
where we give you unfunded priority lists----
Chairman McCaul. Well, I understand you--OMB is probably--
yes, I understand.
Mr. Estevez. A sector-based approach, yes, what we've done
for advanced computing chips, the chips that are going to be
the key to artificial intelligence, the key to the future of
warfare, in fact, as well as future of economic prosperity. In
China where I cannot tell because of the civil military fusion
how those chips are going to be applied, and we know that they
were going to be applied to military applications. Establishing
a technological cutline and saying anything about this cutline
should not be allowed in China because I cannot tell its use
case is way more effective.
It's more effective for industry because they can
understand where that line is and they can then plan out what
their business opportunities are. And it's more effective from
an enforcement perspective. Export controls using the Entity
List is a whack-a-mole game where to your point people change.
And then we have to go after the next one which we're happy to
do. But it's way more strategic to go after on a sector
technological basis.
Chairman McCaul. And as we are debating our outbound
capital flow bill with the Financial Services Committee, I
think that testimony is hugely important. Let me go to Huawei
and SMIC. Your BIS approved hundreds of millions' worth of
licenses for Intel to sell technology to Huawei. Can you
explain that?
Mr. Estevez. Certainly. The Huawei and SMIC rules that are
in place were actually put in place in the previous
Administration. However, when we put in the sector-wide
controls that we were just talking about, SMIC is certainly
subject to those controls. So they cannot get the equipment
that they would need to make the highest end chips needed for
GPU's graphic processing----
Chairman McCaul. Can I ask you on that one? Because SMIC
was able to use the tools and the machines and American
equipment to make this 7 nanometer chip which is the gateway to
AI.
Mr. Estevez. We'll assume that it was SMIC. I cannot talk
about any investigations that may or may not be going. But we
certainly share those concerns, and that's certainly the
reporting.
There's a process to do that. It is a low yield process. It
certainly would not be viable in any commercial company trying
to sustain that process.
And of course, they did access tools before we put in our
tool controls, not the highest end tools but the level just
below that. Those tools will ossify over time. And that process
will be degraded.
Chairman McCaul. Did SMIC violate U.S. export control laws
by producing this 7 nanometer chip?
Mr. Estevez. Potentially, yes. We'll have to assess what
the outcome----
Chairman McCaul. Yes. I mean, I'm not a scientist. But I
would say they did. Finally, my time is expiring. But Mr.
Fernandez--and this may be more of a statement. I have no idea
why this Administration decided to stop permitting the exports
of LNG to other countries.
I mean, this gets back to our energy independence. Europe
certainly wants our LNG. We should've added LNG terminals in
Europe rather than Nord Stream 2 from Russia. That's an energy
policy that really makes no sense to me. And then finally, I
know this is out of your expertise. But the idea that we're not
going to enforce sanctions on Iran and let them export 80
billion dollars of energy to China to then use to fund terror
operations is another foreign policy issue that, quite frankly,
is troubling to me.
Mr. Fernandez. Thank you for your question. Look, on the
LNG pause, this is a pause to assess the additional LNG export
projects, whether they are in the public interest. Given the
increase in U.S. LNG exports and what we know about the effects
of methane emissions and carbon dioxide emissions.
The last assessment by DOE took place 5 years ago in 2018.
In 2018, our exports were one-third of LNG, one-third of what
we have today. Today, we export 12 billion cubic feet per day
and we have a capacity of 14 cubic feet per day. We have right
now projects coming on-stream that will increase our capacity
to 26 billion cubic feet per day by 2030. And those projects
are not being affected by this pause.
Chairman McCaul. When you stop permitting, you're going to
stop project of LNG in the United States. And LNG is very clean
energy as opposed to what China does. And so again, this is not
being energy independent.
It's not helping Europe out from Russia. It's helping
China. And it's a bad foreign policy, and I think it's a bad
energy policy.
And we could debate this, but I'm way over my time, sir.
And I know that Ann Wagner has some pretty--I know Mr. Perry
certainly has some very tough questions for you. So I will now
recognize the ranking member.
Mr. Meeks. Who wants to clarify some things. I want to
clarify some things. So one of the things, though, I am deeply
concerned about in regards to the PRC's routine use of economic
coercion against other nations so that they can advance its
political objectives.
As a result, I sponsored and introduced a bipartisan bill
called the Countering Economic Coercion Act of 2023 to support
our partners that are victims of the PRC and economic coercion
as well as punitive action against Beijing. So my first
question goes to you, Under Secretary Fernandez. After finding
out what steps the Administration has taken to counter and
deter the PRC's economic coercion and support our partners when
they are victims of the PRC's economic coercion.
Mr. Fernandez. Thank you for your question. And I very much
appreciate your support and the coordination of both houses of
Congress on economic coercion which has been one of the top
priorities at the State Department for me. We have seen
economic coercion over and over again on the part of the PRC,
Korea, Japan, Australia, the Philippines.
I got involved with Lithuania. And with Lithuania, we were
able to support Lithuania as it looked to react to PRC economic
coercion. We were able to get EXIM back to double the export
credits available to Lithuania from 300 which is what China was
providing to 600 million dollars.
We were able to get our posts around the world to open
markets for Lithuania. We were able to get our partners around
the world to also help. We have now, I'm glad to say, created a
toolbox.
We have a toolbox that we have developed along with other
agencies. And we are now prepared to help other countries. And
in fact, there's not a month that goes by that a country
doesn't come to the State Department and wants to talk to us
because they are afraid of economic coercion.
The G-7 has taken this up as well. And so I think you're
seeing that we're in much better shape today than we were a
year and a half ago. And in fact----
Mr. Meeks. Let me just ask this question. Now do you think
you need anything from Congress? Do you believe that the
Administration currently have or do they need additional
authorities or resources that you need to more comprehensively
address this challenge? Is there something that we can do here
in Congress?
Mr. Fernandez. Thank you for your question. Well, the
President's budget request includes 1.1 million dollars to fund
the office of the chief economist. One of the things that the
chief economist does when countries come to us, it helps to
assess some of the vulnerabilities that countries have to
economic coercion.
We also could use what I'm calling a banana fund which is
basically agricultural products tend to be targets for the PRC.
And they tend to rot as the PRC holds them at port. So that
would be something else that we could look at as well. Thank
you so much for your support.
Mr. Meeks. And Under Secretary Estevez, I know and you had
the discussion with the chairman in regards to the budget. And
I guess the President in his budget request included 223
million dollars to BIS which I think we need to make sure we
get done. And you testified to some why and to the detail of
what you think is needed. But let me just ask this question. In
your estimation, does BIS currently have the modern IT
infrastructure and software to conduct this day-to-day business
effectively?
Mr. Estevez. The answer to that is an emphatic no. Thank
you for the question, Congressman Meeks. As I said, we're using
antiquated systems fielded in the mid-2000's using 1990's
technology. There's some requests before the committee for some
data. We are doing 90 manual polls of that data right now
because I do not have Google for, like, answering the questions
that I need answered and that I'd like to support the committee
with. And I have an enforcement function that also needs to be
able to track who's doing what where that's really antiquated.
Mr. Meeks. Because I have limited time, and maybe I'll try
to do this in a yes or no real quick, dealing with China export
controls, because I believe the Administration has supercharged
our export control policy in the face of tremendous
geopolitical change and challenges in the Indo-Pacific. So let
me ask you real quickly. In just over 3 years of the Biden
Administration, Department of Commerce has added, I think it's
more than 1,200 entities to the entities list. Is that correct?
Mr. Estevez. That's correct. About 43 percent of the Entity
List.
Mr. Meeks. And among those, BIS has added 303 PRC entries
to that entry list. Is that correct?
Mr. Estevez. 312, about 39 percent of all entities in
China.
Mr. Meeks. And is it accurate that under your leadership at
BIS issued expansive new controls on items, end users, and end
users as it pertains to semiconductors and advanced computing
industries in China?
Mr. Estevez. That is correct.
Mr. Meeks. And based on BIS' analysis, what has been the
impact of these controls on the PRC?
Mr. Estevez. My analysis, which I would say I draw on the
intelligence community and business quite frankly to assess
that, we're having a major impact in China which over time will
be even greater.
Mr. Meeks. So my time has just about expired. So my last
question because I'm concerned about the critical mineral
supply chains. And so I like to know what steps has the Biden
Administration taken to address the demand for critical
minerals and enabled the United States along with our allies
and partners to secure greater control of their supply chain so
we're not beholden to China for access.
Mr. Fernandez. Thank you for your question. Look, as you
know, we have--we're going to need exponential amounts of
critical minerals to reach our clean energy goals, 42 times the
amount of lithium, 25 times the amount of cobalt. That's our
need.
Our vulnerability as of right now, depending on the
mineral, 100 percent of the graphite comes from China, 80 to 90
percent of all critical minerals are controlled or mined or
owned by the PRC. What we have done is we brought together 14
countries plus the European Union to create the Minerals
Security Partnership in order to share information on critical
mineral projects, invest together, finance together. And we're
getting results.
Just as I mentioned in my opening statement, we have in a
year and a half--and this is lightning speed for the mining
sector. We have six projects that are coming on-stream. We have
23 projects that are coming on board.
And the one thing--this is what I take away from this is
that countries are hungry for U.S. investment. We have a
different offer from the PRC. We value environmental standards.
We support transparency.
We cannot--our companies cannot engage in corruption. And
so what we are hearing from governments and what we're hearing
from countries in Africa and Latin America is that they want
U.S. investment. They want our technology. They want our
practices. And I hope that in the future, we'll be able to come
to this committee and have even more projects that we can saw
we have brought on-stream. We're making progress.
Mr. Meeks. Thank you. My time is expired. I yield back.
Chairman McCaul. The gentleman yields. Chair recognizes
Mrs. Wagner.
Mrs. Wagner. I thank the chairman. And most of all, I thank
my colleagues for understanding and letting me leapfrog. My
time is no more important than any of yours, but I am most
grateful.
Gentlemen, vigilantly enforced and properly coordinated
U.S. export controls deny China the access to sensitive
technologies that it wants to steal and fuel its military
modernization. However, our current export control system is
deeply flawed. As a result, controlled U.S. technologies are
turning up in enemy programs, such as the spy balloon that was
sent over my State of Missouri and the rest of the continental
U.S. last year to collect data on frankly our most sensitive
military installations.
It is imperative that our export control system is
efficient, targeted, and effective now that China, Iran, and
Russia have formed a new axis of evil to attack our national
security interests and help each other circumvent U.S. export
controls. And this is why I am sponsoring legislation, the
Export Control Enforcement and Enhancement Act, to ensure these
critical safeguards are more agile and airtight. Secretary--
Under Secretary Estevez, I thank you and your staff for working
with me on this legislation and providing good feedback.
I look forward to continuing to discuss with your team and
stakeholders as we move this bill forward. Secretary Estevez, I
want to be clear that Commerce must improve its efforts to keep
controlled American products and IP from falling into the hands
of bad actors. But we also need to pressure our allies to do
the same.
How are you pushing allies and partners to harmonize export
controls and tighten enforcement, especially I'd say on
microchip technology? And what tools does the Administration
have to compel allies to align with our export control policies
and not inadvertently help China skirt U.S. export controls?
Mr. Estevez. Thank you for that question, Congresswoman.
I'm going to tweak your question a little bit because we do not
pressure or compel our allies. We work with our allies. That's
what makes them allies.
Mrs. Wagner. I like pressuring and compelling. But go
ahead.
Mr. Estevez. I'm from New Jersey. But working them actually
leads to a good end. As the chairman noted in his opening
statement, we worked with the Dutch and the Japanese who happen
to be the other countries that have key equipment like
semiconductors.
Talked to them about the threat. Talked to them about what
we were seeing. And they instituted controls similar to ours
that limit the highest end equipment similar to what we've done
from going to China.
That's not the end of that story. There's more work to be
done. There's components that include other countries. My
frequent flyer miles are rising, going out and talking----
Mrs. Wagner. Good.
Mr. Estevez [continuing]. To our allies.
Mrs. Wagner. I hope so. And let me follow by saying in
February, the Administration sanctioned four companies,
providing material and technology to Iran's missile and drone
programs. How extensive is China's support for Iran's weapons
program? What more can be done to restrict the transfer of
Chinese origin weapons or supply of related components to Iran
and its proxies like Hamas and the Houthis?
Mr. Estevez. So what we've done with regard to Iran, Iran
sanctions program which includes export controls, it's actually
managed by the Treasury Department. But we have related to
Russia evasion put as you noted controls on a number of
companies. I think it's 11 more than before that we initially
put on. We put a bunch on December as well.
And we instituted Foreign Direct Product Rule, both for
those companies and for a slew of other EAR99, normally not
regulated controls, so that even if it's not made in the United
States but it's made with U.S. tech, they're also subject to
those controls. And we're slapping down, I think----
Mrs. Wagner. Thank----
Mr. Estevez. --121 Chinese companies.
Mrs. Wagner [continuing]. You. Secretary Fernandez, earlier
this year, the Biden Administration announced a pause on
pending decisions on LNG exports to non-FTA countries. This
pause has injected new uncertainty into the regulatory
environment in the U.S. for foreign buyers and is
disadvantaging our companies as the compete on the global stage
for contracts. At the same time, this Administration refuses to
enforce sanctions on the sale of Iranian energy to our
adversaries.
Why we stop our energy from flowing to the global market,
we allow Iran to flood the market with their energy, keeping
the world dependent on bad actors and fueling China's machine.
I am out of time, sir. But I would really like for you to
answer in writing how you lead State officials for energy. Did
you agree with these decisions?
What responses did you get when you engaged, et cetera? But
my time has expired, and I will respectfully yield back and
hopefully look forward to your answer in writing. Thank you,
Mr. Chairman.
Chairman McCaul. Gentlelady yields. Chair recognizes Mr.
Connolly.
Mr. Connolly. Thank you, Mr. Chairman and welcome to our
panel. Just I heard earlier concerns about our energy posture
and the Biden Administration asleep at the wheel or something
and jeopardizing our energy security. Mr. Estevez, wearing your
Commerce Department hat, who's producing the most oil and gas
in the world today, No. 1?
Mr. Estevez. Not my writ, but the United States.
Mr. Connolly. United States. And is it an all-time record?
Mr. Estevez. Again, not my writ, but I believe so.
Mr. Connolly. Yes. And would we call that sort of energy
self-sufficient at this point? Have we pretty much kind of
achieved that?
Mr. Estevez. I believe so.
Mr. Connolly. You believe so? Are we, in fact, now
exporting oil and gas products because we produce so much for
our own domestic consumption?
Mr. Estevez. Yes, we are.
Mr. Connolly. And are we, in fact, providing a lot of LNG
exports to our European friends who are trying to wean
themselves off Russian oil and gas? And are we not, in fact--is
it not expanding so much that we're actually expanding
facilities to receive that LNG in terms of depots and tanks and
the like, in terms of constructing new facilities in Europe?
Mr. Estevez. I'm going to yield that to Under Secretary
Fernandez.
Mr. Connolly. And Mr. Fernandez if I could ask you, please
just speak into the mic. You're very hard to hear. You have a
low voice.
Mr. Fernandez. OK.
Mr. Connolly. Thank you.
Mr. Fernandez. Can you hear me now?
Mr. Connolly. Yes.
Mr. Fernandez. Just very simply, our LNG producers have
really stepped up to the plate in response to Russia's invasion
and Putin's weaponization----
Mr. Connolly. Right.
Mr. Fernandez [continuing]. Of energy. Right now, 70
percent of our U.S. LNG exports go to Europe. We actually
provide the Europeans more than 50 percent----
Mr. Connolly. Right.
Mr. Fernandez [continuing]. Of their imported LNG.
Mr. Connolly. Right. So across the board actually, we're
kind of hitting all records. So let's stop the myth that
there's a problem with the Biden Administration with respect to
energy. And, oh, by the way, if we want to get into renewables
and I do, we're also producing more wind energy and solar
energy than ever before. Is that not correct, Mr. Estevez?
Mr. Estevez. That, I cannot answer because I----
Mr. Connolly. Yes, the answer is----
Mr. Estevez [continuing]. Just do not follow it. But I
believe so, yes.
Mr. Connolly. Yes, the answer is yes. OK, appreciate it.
Mr. Estevez, recently the French President a few months ago
said unbelievably that Taiwan was really an American concern.
And he said it, I believe, in China.
I mean, talk about a warning light and an invitation to a
hungry wolf to have at it. That fits the bill, as if Taiwan
were a parochial concern to the United States. So help me
understand why another country like France might be interested
in Taiwan from, let's say, an economic point of view. Where are
about 80, 85 percent of the world's memory chips produced?
Mr. Estevez. I'd say, like, 85 percent of the advanced
logic chips are certainly produced in Taiwan.
Mr. Connolly. Taiwan.
Mr. Estevez. There's a little more disparity.
Mr. Connolly. Pretty much one company too, right?
Mr. Estevez. That's correct.
Mr. Connolly. Right. Let's just repeat that, 80, 85
percent?
Mr. Estevez. Of the advanced logic chips in the world.
Mr. Connolly. Right. So apparently President Macron
believes the other 15 percent are all produced in France?
Mr. Estevez. Korea.
Mr. Connolly. Oh, so maybe France actually has an interest
in Taiwan and that interest goes way beyond just the United
States. Would that be a fair thing to say just looking at it in
terms of economic dependence and technological independence?
Mr. Estevez. That would be. But I would also say that our
goal is to have 20 percent of those advanced logic chips made
in the United States----
Mr. Connolly. Fair enough.
Mr. Estevez [continuing]. By 2030.
Mr. Connolly. But that's across the board. That's not just
aimed at Taiwan. Is that not correct? We're trying to lesson
our dependence on pretty much single source----
Mr. Estevez. That is correct.
Mr. Connolly [continuing]. China, Taiwan, Korea, whoever it
may be. We want to make sure that----
Mr. Estevez. Diverse supply chain.
Mr. Connolly. Right. And that's a supply chain issue. Mr.
Fernandez, I'll give you the last word on the same question,
why other people might want to be interested in the future of
Taiwan besides just the United States.
Mr. Fernandez. Congressman, you're talking to a big admirer
of Taiwan. I've led four economic dialogs with Taiwan where we
talked about supply chains in fact which are items of concern.
We've talked about economic coercion, the energy transition and
the like.
We have--actually, we can say we've got some results as
well. We were able to get the 21st Century Trade Initiative
passed for which we thank you. And we are also promoting a
double taxation agreement with Taiwan that we are now
considering. Treasury is leading that. And if we are
successful, it'll make it easier for Taiwanese companies to
invest here in some of the projects that Congress is proposing.
Mr. Connolly. Just a little self-promotion. I helped write
a bill that addresses that last issue. Thank you, Mr. Chairman.
And thank you for having the hearing. And I wish I could
understand why we're having a second one this afternoon.
Chairman McCaul. Well, we just work very hard on this
committee. And I really admire the Irish Green Kelly scarf.
It's very nice. Mr. Smith is recognized.
Mr. Smith. Thank you, Mr. Chairman. Thank you for your
testimony and your leadership. Let me ask you. Xi Jinping is
credibly accused of genocide against the Uyghurs. I would think
there's no doubt about it that he is destroying the Muslims in
Xinjiang.
He has taken over Hong Kong against what a lot of Sino
watchers have said would never happen. I thought it would. I
introduced the Hong Kong Human Rights Democracy Act in 2014
when the umbrella was just getting off its feet.
They're destroying human rights everywhere, religious
freedom. The APEC Summit in my opinion was a shameless
kowtowing to Xi Jinping, especially when so many of our
businessmen paid so much to meet with a guy that's committing
genocide. And frankly, I believe that trade is important as
long as it's conditioned on human rights respect.
And we all know that Bill Clinton delinked human rights
from trade on May 26, 1994 after famously linking it. And he
infamously delinked it. I went over to China. I met with them.
They said, we're getting it long before he got rid of it.
And that to me was the pivot point for they looking at us and
saying, all they care about is the bottom line. Yesterday, I
chaired my 100th congressional hearing. I chair the China
Commission.
We focused on this horrific practice of forced organ
harvesting. It's my third hearing on that. I have a bill that
passed bipartisan sitting over in the Senate since March 28th
of last year.
Only two people in the whole House voted against it to
really rein in on an egregious practice. Everywhere you look,
name the human rights abuse, Xi Jinping is excelling in it. And
of course, he's threatening Taiwan.
Now I had three hearings on the whole issue of cobalt. I've
been to Goma. We know that DR Congo is sending all of its
cobalt to China.
When I asked Secretary Curry this at one of our hearings,
he said, oh, they have an MOU at DR Congo. It's an
aspirational, not worth the paper it's printed on really MOU
because very, very high people in that country of DR Congo are
getting huge amounts of money in their pocket in order to
facilitate that. If you want to drive an EV, God bless you.
No problem with me on that. I have problems with its long-
term environmental issues, what happens to the batteries, all
of that. But if the cobalt which is it is, is coming from 25 to
40,000 children through child labor in DR Congo and upwards of
200,000 adults who are dying, getting sick.
That supply chain is so seriously tainted. We got to find
some other place. Yes, American companies and others have all
sold out and that's sad.
But frankly, we do have American companies here that do
cobalt, mine it. But it's more expensive because when you deal
with China, obviously everything is cheaper because of their
ability to coerce labor. So my question is on the cobalt.
How can we as a country allow the importation? I have a
bill I've introduced that will provide a rebuttable
presumption, similar to what we did with the Uyghur Forced
Labor Act to say, fine, we'll bring it in as long as it's
clean. It's not coming from a coercive situation with forced
labor.
Is that something you can support? I mean, we've got to be
clear we do not advance our goals on the backs of little kids
in the DR Congo. And again, I've been there many times, and on
the back of their parents who are dying in these mines.
Mr. Fernandez. Let me take a piece of that and then Alan
can take the rest. Look, just to start from the beginning.
Promotion and respect for human rights is an essentially tenet
of our policy, no questions asked.
OK. And in terms of cobalt in the DRC, this is a concern.
But I also think that from our point of view, it is also a
competitive advantage. If we can get involved in the critical
minerals extraction or processing and follow the highest human
rights environmental and work with communities so that
communities do not have to choose between environmental
degradation and child labor and economic prosperity.
That's our competitive advantage. And that's what--in the
Congo and elsewhere, that's what countries want. We are pushing
in an open door. What we need to do is to actually show up,
have the resources, get our companies involved, and as well as
companies from our allies and partners.
Mr. Estevez. And I would agree with what Under Secretary
Fernandez just said. I note American companies are in Zambia
doing some cobalt mining and looking in that regard. I think
having American companies, using American standards of labor is
critically important to our values.
Mr. Smith. I would encourage you--I'm out of time. But
please take a look at this bill. I think it advances that goal.
Again, no matter where anybody comes down on EVs, it better
be absolutely clean of child labor and forced labor of their
parents. I yield. Yes, please.
Mr. Fernandez. Congressman, I'd be delighted to show you
some of the--we have put in writing in the Minerals Security
Partnership what our environmental and human rights tenets are,
principles are. And we put them in black and white. We can see
it on the website. And that again, that is a competitive
advantage for U.S. companies.
Mr. Smith. Thank you. I'm out of time.
Chairman McCaul. Gentleman yields. Mr. Sherman is
recognized.
Mr. Sherman. Mr. Chairman, I've got a bill for you.
Chairman McCaul. Excellent.
Mr. Sherman. You mentioned capital flows. We have a capital
gains allowance built into our tax code because we believe that
encouraging people to invest in stocks means that you build the
economy. We provide a capital gains allowance for those who
invest in Chinese stocks, building their economy at the cost of
the U.S. taxpayer.
But here's the good part. China has investment incentives
for their people to invest in their economy. And they do not
provide those incentives when people invest here. So I'm hoping
that I can get you to co-sponsor what is now bipartisan
legislation to say that we do not provide tax incentives for
investing in Chinese-based companies.
Chairman McCaul. We'll talk to the Ways and Means Committee
about this issue. It sounds good to me.
Mr. Sherman. Good. TikTok has come to mind. It's a national
security issue. It's also an economic issue and one of
fairness. Chinese companies make a lot of money showing
Americans cat videos. Does China allow U.S. apps on the phones
of Chinese citizens so that they can see cat videos in a way
that makes money for American companies? Mr. Estevez.
Mr. Estevez. I do not believe that they do.
Mr. Sherman. So why in the hell do we let them make money
on our cat videos when we cannot make money on our cat videos?
Under Secretary Fernandez, we've got the Indo-Pacific economic
framework. It involves a host of countries that seem to all
kind of be in Taiwan's neighborhood plus us, of course. What is
the current posture of including Taiwan in the Indo-Pacific
economic framework?
Mr. Fernandez. We have an open architecture. Taiwan and any
other country can apply to join.
Mr. Sherman. So do we expect that the other countries in
that framework would be happy to have Taiwan join? Is there a
reason they're not in it?
Mr. Fernandez. I wouldn't be able to speculate, sir. I will
tell you that Taiwan is one of our largest trading partners, as
far as----
Mr. Sherman. Mr. Estevez, is there any political obstacle
to Taiwan joining the effort?
Mr. Estevez. Not that I'm aware of.
Mr. Sherman. OK. So I'd want to point out that the Biden
Administration has done an unprecedented job in export controls
to China. I understand there are 2,888 entities--entries on the
Entity List and 43 percent of those are added by the Biden
Administration. Do I have that correct?
Mr. Estevez. That is correct.
Mr. Sherman. We have the BIS which designed to effectuate
our export controls. It's my understanding that that has been
flat-lined in appropriations. Does BIS need more money? And
given the fact that if I went to the grocery store with the
same amount of money as I took in 2010, I'd be considerably
thinner than I am now. Haven't we seen an actual cut in our
efforts to implement export controls?
Mr. Estevez. Our budget to your point has been flat. Our
workload has----
Mr. Sherman. And then when you say----
Mr. Estevez [continuing]. Doubled and it's way more
complex, flat.
Mr. Sherman. Flat? Not even adjusted for inflation flat?
Flat flat?
Mr. Estevez. Adjusted for inflation.
Mr. Sherman. Adjusted for inflation?
Mr. Estevez. Yes.
Mr. Sherman. But that's it. But we have more technology,
more trade. And how many more applications do you have to deal
with now than you did 15 years ago?
Mr. Estevez. It's gone from 20,000 to 40,000. And again,
way more complex.
Mr. Sherman. Got you. One more thing, there is well over
100 companies whose in China whose activities are an anathema
to us. Some of them human rights violators. Some of them just
integrated into the military industrial complex.
And they're such an anathema to us that no American can by
any product of that company. They happen to make paperclips.
You cannot buy the paperclips. So if the company is so bad that
you're not allowed to buy anything they make, can either of you
gentleman figure out why we would allow Americans to buy stock
in such a company? Or is this just a congressional oversight?
Mr. Fernandez. I will tell you that we have what's now in
the works and you know this is a very narrowly focused outbound
investment rule for products that could end up in China's
military complex.
Mr. Sherman. I've got another bill for the chairman that
says if you cannot buy a product of a company, you cannot buy
stock of a company in China. It's not as interesting as the
first bill I brought up, but I'm bringing up at the end. And I
yield back.
Chairman McCaul. The gentleman yields. Chair recognizes Mr.
Wilson.
Mr. Wilson. Thank you very much, Mr. Chairman. And thank
you for being here today. And indeed we look forward in a
bipartisan manner to work with Congressman Sherman on his very
innovative initiatives that he's proposing.
But as we being, I want to thank Chairman Mike McCaul for
his leadership this week. On Tuesday, he actually created a
historic significance in that sadly the appeasement in
Afghanistan was revealed with 13 Marines murdered at Abbey Gate
who was solely the responsibility of Biden. On August 26, 2021,
Biden blamed the military for the disaster.
But with the leadership of Chairman McCaul, we now know
with General Mark Milley and General Frank McKenzie, they
verified Tuesday that the irresponsible decision was Biden
alone. Equally, we found out that as Biden blames Donald Trump,
there have been the violations to the Doha agreement by the
Taliban. And Donald Trump has indicated that it was conditions-
based and he would've never left Bagram Base.
And so that was an historic hearing that we had. And then
today, we're grateful to be here with you. And that is,
Secretary Fernandez, Indo-Pacific countries are in the middle
of an energy crisis.
Current production levels cannot meet the growing demand
for energy in the developing countries. And many countries in
the region do not have geopolitical topography for the support
of green energy sources such as wind, hydro, and solar. Many
countries have expressed a desire to work with the United
States on transitory energy such as cleaning current coal
resources or natural gas to meet energy demands while improving
the current environmental standards.
Yet utterly responsible to me is the Biden Administration
has announced restricts on gas, oil, and LNG exports, putting
these countries in a bind and having no choice but to proceed
to alternative suppliers such as the Chinese communist party.
Current record exports by the United States are the result of
the Trump Administration's successful policies, not the current
Administration. And in fact, there's a contrast.
As Trump promoted energy independence, Biden is promoting
battery dependence on Chinese batteries. And there seems to be
a Biden obsession for creating dependency on Chinese batteries,
destroying American jobs. With the current proposal to cut back
on exports, Secretary, how does this affect particularly LNG
exports to Japan?
Mr. Fernandez. Congressman, thank you for your question.
And let me State again. It's an LNG pause. It's a pause
designed to figure out by DOE whether additional LNG export
projects are in the public interest.
That is an assessment that DOE will make. The circumstances
have changed since the last DOE assessment in 2018. We now
export three times, triple the amount of LNG that we exported
in 2018.
We are due to double that by 2030. This pause does not
affect current project assessments. And I have spoken to
colleagues in Japan, and they understand what we are doing. We
have doubled exports. We intend to double exports by 2030 with
existing licenses.
On Afghanistan, I'm not going to get into some of the
specifics. I will tell you this. I keep a photograph in my
office of an Afghan worker standing in line at the airport. And
I can see the panic in his face. My colleagues at the State
Department, including me, work night and day and we stand by
that work.
On batteries, let me just say that the Inflation Reduction
Act has already led to substantial investments in battery
manufacturing in the U.S. I was in Georgia a couple of weeks
ago. Georgia has received----
Mr. Wilson. Hey, my time is about up. Indeed, the Inflation
Reduction Act, how irresponsible is that. Almost a trillion
dollars to be used to subsidize Chinese batteries. I find it
totally irresponsible.
It has nothing to do with inflation reduction. It has
everything to do with promoting dependency on Chinese batteries
as you're just revealing. And that's just irresponsible.
And we should be promoting our efforts to LNG and gas
exports to produce American energy independence. I yield back.
Thank you.
Chairman McCaul. The gentleman yields. Chair recognizes Mr.
Keating.
Mr. Keating. Thank you, Mr. Chairman. Mr. Estevez, you
mentioned in your opening statement that China is watching our
actions in Ukraine. I agree. Can you expand on the importance
of use right here in this Congress as we take 2 weeks off?
We're on vacation and Ukrainian soldiers are going to be
dying on the front line. Can you expand on the importance of
how that commitment is to our allies and our coalition for
security in Indo-Pacific as well as our economic interests in
the Indo-Pacific? We just had a bipartisan senate bill. Not
just frankly, 5 weeks ago, passed by an overwhelming margin.
And we sit here to take 2 weeks off and do not act on this.
So you mentioned it in your opening remarks, and I'm glad you
did. Can you tell us how important it is that we honor our
commitment to our coalition over 50 other countries, including
in the Indo-Pacific, working together on this and not shirk our
responsibility, which frankly with 185 members signing a
discharge position, all Democrats.
But I must say including members of this committee. I think
over 100 Republican members at least willing to vote for this
if the Speaker of this House put it on the floor for a vote.
Can you tell us as we talk about this issue this morning how
important that is to the things we're talking about here?
Mr. Estevez. So I'd be happy to, Congressman. I really
appreciate the question. I note, you know, my writ at
Department of Commerce is export controls, and we have tight
export controls on Russia.
Unfortunately, export controls do not cut and immediately
stop the Russian defense industrial base. It's more, like, the
squeezing of an anaconda. It's a slow squeeze.
While we were doing that, we need to supply Ukraine with
the weapons they need. That is as a national security
professional 36 years into the Department of Defense and two
and half years at Commerce supporting our allies, showing our
allies that we have the spine and backbone to meet our
commitments, our commitments to NATO, our commitments across
the Asia Pacific in front of malign actors who would overturn
the world order that we established 80 years ago already, post-
World War II. Russia is challenging it. China is challenging
it.
That's why they're schmoozing together. Showing that we
will stand up to aggression is critically important in
providing Ukraine the funding that they need. Without U.S.
boots on the ground to sustain their fight against Russia and
Putin's illegal invasion is critically important to our world
standing.
Mr. Keating. Thank you. I think it's just not about
democracy, although that's fundamental. It's also about--people
should realize it's about their pocketbook and what things are
going to pay. Along those lines, I just left another hearing
where we had heard testimony about Russia's desire to secure a
port in Sudan.
And we look at China's activities in Djibouti and how they
can--but it's not just in those areas. China is trying to gain
port access and control all over the world. Can you talk about
the effect of China's ability to--and their desire to even do
more--control the navigational ports all over the world and how
that affects us economically, not just in the Indo-Pacific but
around the entire world?
Mr. Fernandez. If I could take that. China has made
investing in ports a strategic infrastructure priority through
BRI, Belt and Road Initiative, through a number of investments.
They also have a national security law obviously that compels
Chinese companies and Chinese national to follow national
security dictates. This is a concern. And what we are doing is
we started a Strategic Ports Initiative, State and the NSC and
others, to work on funding companies that want to invest in
ports around the world and also to work on other infrastructure
involving maritime transport.
Mr. Keating. It's fair to say you're talking about trillion
dollar issue here.
Mr. Fernandez. You're absolutely right. You're absolutely
right. The BRI numbers are astronomical. They dwarf whatever we
have at DFC and other initiatives.
Mr. Keating. And American consumers right now in my opinion
are being price gouged because of the cost of shipping. You add
to that what's going on with the Houthis and the Red Sea and
their destruction and the cost of that. This is something we
should clearly be focused on as our own policy. So thank you
for your testimony, and I yield back.
Chairman McCaul. The gentleman yields. Chair recognizes Mr.
Perry.
Mr. Perry. Thank you, Mr. Chairman. Mr. Estevez, the
Institute of Forensic Sciences, I'm sure you're familiar,
located in East Turkestan, used to aid and assist in the
genocide and the experimentation on the Uyghurs. I'm curious
about your delisting that entity in November of last year. Can
you walk me through that rationale?
Mr. Estevez. Thank you, Congressman Perry. First, the
listing was for human rights violations as you note. We, of
course--I shouldn't say of course. We take human rights
concerns seriously. There are 70 or so parties on the Entity
List related to human rights violations. This institute, which
is a Chinese State organization engaged in crime control, it
was certainly engaged in bad things with regard to the Uyghurs
and, in fact, receives no exports from--no exports of note,
like, a couple of things.
Mr. Perry. Look, that's all, like, superfluous background
information. I'm asking about----
Mr. Estevez. But it's pertinent to the fact that you're
asking about. So the delisting of that went through process,
the normal process, requires a 4-0 vote across the interagency.
It got a 4-0 vote. And as a result of that, the Chinese have
engaged in cooperation for stopping fentanyl precursors from
flowing to Mexico and other places.
Mr. Perry. That's working out real well. So what I'm
interested in, OK, so it got a 4-0 vote. I do not care about
that. That's groupthink. Tell me----
Mr. Estevez. A hundred and 15 Americans dead a day from
fentanyl, and they're finding fentanyl----
Mr. Perry. Yes, I know. And they keep dying more and more.
The point is that's not working. The Chinese gave us lip
service, and we delisted this organization that is hiding the
fact that they're using the Uyghur for genetic experimentation
and then manipulation and potentially warfare against them and
us. But that aside, tell me about what factors went into the
decision.
Mr. Estevez. The factors that went into the decision
related to Chinese cooperation related to fentanyl precursor,
stopping fentanyl precursors.
Mr. Perry. OK. So it relates to the fentanyl precursor
manufacturer delivery to Mexico and so on and so forth. How is
that being measured? What's the metric of success that says if
we delist, you're going to do this? And this is measurable how?
Is it in the deaths of Americans that's increasing every year
by fentanyl or not?
Mr. Estevez. It's stopping deaths of Americans,
Congressman.
Mr. Perry. So is that working? Are you saying we're
stopping the deaths of fentanyl? Is that your testimony?
Mr. Estevez. I'm saying that we're stopping the flow of
precursors related to this action.
Mr. Perry. You're stopping--so that's your testimony. The
precursors are being stopped. The precursors of fentanyl are
being stopped because of this----
Mr. Estevez. That's the goal, Congressman.
Mr. Perry. I'm sorry?
Mr. Estevez. That's the goal, Congressman.
Mr. Perry. I get it's the goal. That's a great goal. But
when it doesn't happen because China says yes, we'll do it, and
then----
Mr. Estevez. If it doesn't happen, then we can turn that
around.
Mr. Perry. So how long--how many deaths are we going to
wait? How many does that cost----
Mr. Estevez. As you know, Congressman, it's just like any
other thing with control, there's----
Mr. Perry. Look, I'm just looking for the metrics, sir. I'm
not trying to be difficult.
Mr. Estevez. I'm going to turn it over to Under Secretary
Fernandez to tell you how----
Mr. Perry. Well, I got other questions for Secretary
Fernandez. But I think I----
Mr. Estevez. Well----
Mr. Perry. I'm sorry?
Mr. Estevez [continuing]. We run the process for delisting.
The actions that are taken are being done in other agencies
other than my own.
Mr. Perry. Yes, so that everybody can do this and people
can keep dying. Mr. Fernandez, regarding the DOE's decision on
LNG exports of January of this year, did you object to the
decision?
Mr. Fernandez. No.
Mr. Perry. So you act as those we've had other reviews and
this is similar to that one. But on the other reviews that have
occurred, has there been any pause as a relation to the review?
Mr. Fernandez. I cannot tell you what has been done in the
past.
Mr. Perry. Let me tell you. There have been none. So right
now, we're talking about the pause that's happening. It's for
contracts that are being bid for 2030, for 2030.
Let me ask you this. The other countries that we might be
competing with or that are strategic adversaries to the United
States to say the least, do you think that they're concerned
with environmental justice issues when they make considerations
about their LNG production and exports like Iran? Do you think
that's a topic for Iran?
Mr. Fernandez. Congressman, by 2030, right now with the
existing guidance, we will have doubled.
Mr. Perry. It doesn't matter, sir.
Mr. Fernandez. Let me finish. Let me finish, please. And
clean energy and climate are critical issues to this
Administration. Now we can argue about climate change. We can
get into that. But as far as we are concerned----
Mr. Perry. So my question for you----
Mr. Fernandez [continuing]. It is an existential challenge
of our time.
Mr. Perry [continuing]. It's great if it's double, triple,
quadruple. That's irrelevant to me. The question is, is what
other countries that we're competing with are considering
environmental justice, countries like Iran?
Mr. Fernandez. It is not about environmental justice.
Mr. Perry. Well, it says so.
Mr. Fernandez. If I may.
Mr. Perry. That's one of the considerations, wasn't it?
Mr. Fernandez. If I may.
Mr. Perry. Sir?
Mr. Fernandez. If I may.
Mr. Perry. I'm listening.
Mr. Fernandez. It is not about environmental justice.
Mr. Perry. So that was not one of the considerations?
Mr. Fernandez. It's about climate change. It is not about--
and again, we are doubling----
Mr. Perry. I'm just asking, sir. Was that one of the
considerations?
Mr. Fernandez. Which one? Environmental----
Mr. Perry. Environmental justice in the pause.
Mr. Fernandez. One of the considerations was to allow DOE,
the Department of Energy, to conduct an assessment based on
trends----
Mr. Perry. And was one of the things that they were
assessing environmental justice?
Mr. Fernandez. You will have to ask DOE.
Mr. Perry. You're the--sir, it says energy in your title.
Don't you know this?
Mr. Fernandez. You will have to ask--DOE is conducting the
assessment.
Mr. Perry. Thank you, Mr. Chairman. I yield.
Chairman McCaul. The gentleman yields. Chair recognizes Ms.
Titus.
Ms. Titus. Excuse me. Thank you, Mr. Chairman.
Coincidentally, I'm going to take a minute to kind of brag
about a bill that we passed this morning, Mr. Barr and I did,
that had to do with cooperation with China. I think you and the
President are right to say that we want to keep the bilateral--
I'm over here. Oh, OK. I couldn't tell if you all were talking
to me or talking to somebody over there.
About the science and technology agreements. And so I'm
glad to see those moved forward because I think we can benefit
from them as well as the rest of the world. But my question has
to do with another meeting that I had recently.
Just yesterday, I met with the President of the Federated
States of Micronesia. And he was expressing some of the things
that we've already talked about today, the attempts by China
for financial inducements. They're impacting economic
relations, diplomatic relations. We're talking about ports. As
you look at what China is doing in this part of the world, can
you just tell us, Mr. Fernandez, Mr. Secretary, what it is that
keeps you up at night when you think about those relations and
how we can attempt to counter them?
Mr. Fernandez. Thank you for your question. The U.S. and
our allies have helped to maintain the peace and security in
the Pacific Islands since World War II. And we've also made
possible the economic prosperity and development that you see
there.
We are putting in a lot of time and effort and attention on
the Pacific Islands in response to a pattern by the part of the
PRC of making vague confidential deals that relate to fishing
practices to security and the like. The President has had two
leader level summits with Pacific Island leaders in D.C. We are
actually showing up and Secretary Blinken has been there, a
number of my colleagues at State, a number of other departments
as well.
We've opened two new embassies. We have since--in the last
2 years, we have 2 billion dollars in commitments to the
Pacific Islands. We've increased our contribution to the tuna
treaty which is an important treaty in the Pacific Islands. And
we're cooperating on IUU fishing.
We're doing a lot. And I personally was involved in helping
Google with its cable that's supposed to go from Chile to
Australia with a number of spurs going to the Pacific Islands.
So I think you will see and we will continue to see renewed
interest on the part of the Administration in working with
Pacific Island countries.
Ms. Titus. Yes, sir. Would you like to add to that?
Mr. Estevez. That's really Under Secretary Fernandez's writ
versus mine.
Ms. Titus. Are you making progress with the settlement from
the radiation left from the testing of weapons in the Pacific
Islands?
Mr. Fernandez. That one is outside of my remit. I'd be
happy to take that back.
Ms. Titus. Because that seemed to be kind of a sticking
point in some of the agreements. But now that we've passed the
COFA, it seems like some progress is being made. And the
President was optimistic and hoping to see some of the benefits
for social programs restored there. And I think that's
something that we might want to look at too as we strengthen
our relations.
Mr. Fernandez. Thank you.
Ms. Titus. Thank you. I yield back.
Chairman McCaul. The gentlewomen yields. Mr. Barr is
recognized.
Mr. Barr. Thank you, Mr. Chairman. And Under Secretary
Estevez, a question about BIS licenses. You and I have talked
about this before. Appreciate the work that you're doing.
Last year, I asked you how many BIS licenses were approved
for companies that wanted to do business with entities on the
Department of Defense 1260H list. That's the Chinese military
companies or the Treasury list, the NS-CMIC list, the Chinese
Military Industrial Complex list. Your response was that you
needed to get back to me. That never happened. Let's try again
this year. Do you know how many BIS licenses were approved for
companies that wanted to do business with entities on the DOD
1260H list or the CMIC list?
Mr. Estevez. I do not know that answer. I know----
Mr. Barr. Don't you--can I just say it's OK you do not
know. Well, maybe it's OK. But do not you think that's a really
important question for BIS?
Mr. Estevez. Here's what I would say. You and I have had
this dialog and we'll continue to have it because I think we're
making progress on the overall list harmonization issue----
Mr. Barr. Yes.
Mr. Estevez [continuing]. Which is the real point that I
think you want to get at. So that when an exporter looks
whether they're an SDN on OFAC or whether they're on the Entity
List or they're on the DOD list which actually has a completely
different use case. So it's really not in the same vein.
But the exporter knows that they need a license to come and
get it. And then, of course, licensing policy on the Entity
List mostly is presumption of denial. But there are some
variances to that.
An exporter actually looks at the consolidated list. They
see all that when they do that. So they know. For us, we just
put out a rule this week, yesterday, in fact, related to OFAC
and Entity List synchronization related to Russia. There are
other things that we can do in that. So there is progress in
that vein.
Mr. Barr. Why would Commerce ever issue a license for an
American business to export or do business with a Chinese
military company or a Chinese military industrial complex
company? What possible interest do we have in that in granting
that license?
Mr. Estevez. Now again, if they're on the Entity List, it
depends on when the policy is set and how it was set----
Mr. Barr. And I'm not saying we may not. But I want to know
what would be the interest of the United States in issuing that
license.
Mr. Estevez. For the most part, there is none.
Mr. Barr. OK.
Mr. Estevez. For the most part, it is a presumption of
denial. There are licenses frankly to give desks and chairs and
stuff like that----
Mr. Barr. OK. All right.
Mr. Estevez [continuing]. Which would be weird that the
Chinese would be buying desks and chairs from us. But so be it.
OK. I'll take that trade.
Mr. Barr. OK.
Mr. Estevez. But for stuff that's meaningful to a military
organization, no.
Mr. Barr. OK. Well, we just want you to stay on top of
that. I do not really--I do not think Members of Congress on
either side of the aisle are really interested in issuing
licenses to do business with Chinese military companies. OK?
Mr. Estevez. Neither is the Under Secretary of Commerce----
Mr. Barr. OK.
Mr. Estevez [continuing]. By the way.
Mr. Barr. All right. Emerging and foundational
technologies, Secretary Estevez, under the Export Control
Reform Act, BIS is required to keep a list of emerging and
foundational technologies, implement controls on those
technologies, and work to establish multilateral controls with
other countries and report the results to CFIUS and Congress,
including the House Foreign Affairs Committee. When was the
last time BIS submitted this required report to Congress?
Mr. Estevez. I believe our last report went out last year.
Mr. Barr. And Under Secretary Fernandez, as the person
responsible for State's participation on CFIUS, have you
received this report from BIS?
Mr. Fernandez. I personally do not know the answer to that
question. I can go back and check. We have other colleagues in
my bureau who are more directly responsibility.
Mr. Barr. Well, it's 2024. We passed this bill in 2018. We
got to get on it. And ECRA implementation has been painfully
slow. And we want Commerce and we want State to be on top of
it. So let's keep that going.
Mr. Estevez. If I could, Congressman. Under FIRRMA which,
again, I got to testify before your committee for FIRRMA. And
I'm glad that it passed.
CFIUS does not need to see any list to understand where to
put controls and what investments to make. CFIUS is working the
way it should. But we do share technology requirements with
CFIUS which I happen to have a say in.
Mr. Barr. My time has expired. But I want to just make the
point that whether we do sector based investment controls, Mr.
Chairman, or whether we do sanctions or both, what we want--and
I know the chairman shares this view. What we want is precision
and certainty and clarity for the American private sector.
So implementation of the executive order or legislation
we're working on, we do not want the private sector to be
guessing. We want the American private sector to know what is
red light and what is green light. That's what the export
control system has achieved largely over the years, and we want
that to be the case without bound capital flows as well.
Mr. Estevez. I concur with you, Congressman.
Mr. Barr. I yield.
Chairman McCaul. The gentleman yields. I would like to take
this opportunity to ask you, Mr. Estevez. Financial Services
has a bill. Foreign Affairs has a bill. Ours is sector-based.
Theirs is OFAC sanction-based. Is there--in your opinion--I
know you're a sector-based person, sort of like I am. But is
there a way to combine both approaches? And would that be more
effective?
Mr. Estevez. There probably is, Congressman. You're coming
up off the top of my head here.
Chairman McCaul. Right.
Mr. Estevez. Right. But I mean, we do it with things,
sector-based that I've done it on, semiconductors and
semiconductor equipment. Or what we would say artificial
intelligence do not support Chinese companies that are being
models of X, 10 to the X, 26, or something like that. And we
can say, do not support these companies as well in y our
investment.
So the stock exchange thing that Congressman Sherman was
saying. Don't buy their stock. Don't support those companies.
So I think there's probably a combination that you could do
that gets the full gamut of what needs to be done.
Chairman McCaul. Well, give that some though. And perhaps
you could get back to me and Mr. Barr.
Mr. Estevez. Happy to.
Chairman McCaul. That'd be very helpful.
Mr. Estevez. You bet.
Chairman McCaul. Thank you. Chair recognizes Mr. Stanton.
Mr. Stanton. Thank you very much, Mr. Chairman and Ranking
Member for holding this important hearing. Thank you to our
witnesses for being here today. Mr. Chairman, I owe you a big
thank you. Arizona owes you a big thank you.
Chairman, you are a champion of the CHIPS and Science Act.
The President of United States and Secretary Raimondo,
Department of Commerce were in Arizona yesterday as was I to
announce the largest investment of CHIPS and Science Act
resources to Intel which has its largest manufacturing facility
in my district in the State of Arizona. Those will also benefit
there, manufacturing facilities being built in Ohio, in Oregon,
as well as New Mexico.
Equally as important supporting the security of the supply
chain that goes along with it. Incredibly apropos for today's
conversation, 8.5 billion dollars in investment to grow
semiconductor and improve security in the semiconductor supply
chain. The CHIPS and Science Act investments are intended to
spur American manufacturing and shore up national security.
But these investments need to be complemented by
appropriate export controls administered by the Bureau of
Industry and Security that make sure that these important
innovations work for the American companies and bring resources
and jobs to American families and insure that our supply chains
are as secure as possible. Export controls are most effective
when imposed by multiple countries, not done just unilaterally
by the United States. Under Secretary Estevez, how has the
Biden Administration worked to rebuild international engagement
on export controls after a few years of taking unilateral
action?
Mr. Estevez. Thank you for that question, Congressman. In
the semiconductor space directly, we moved out on some
controls, some sweeping sector-wide controls with regard to
China. But we were talking to our allies as we were doing that.
Our allies fortunately share the same threats. They share
the same values that we see. And shortly after we took our
action, they took similar actions so that they have also
stopped the highest end of semiconductor manufacturing
equipment from going to China. But that can threaten us in the
future.
Mr. Stanton. We know that there are still gaps in
multilateral export controls. U.S.-China Economic and Security
Commission's 2023 annual report showed that China was able to
stockpile semiconductor manufacture equipment between when the
U.S. implemented its October 1922 semiconductor export controls
and when Japan and Netherlands fully implemented theirs in
September 2023. What is BIS doing to ensure our allies are
honoring and implementing their respective semiconductor export
control rules in parity with the United States? And that's for
either witness.
Mr. Estevez. I'll take that. First of all, we monitor sales
across the globe just as if we were buying stock quite frankly,
looking at the investments. I am racking up frequent flyer
miles, talking to our allies about what they're doing, how
they're doing it, making sure that we have parity between U.S.
companies and the companies in our allied nations so that we're
all having similar controls going.
We're also looking in regard to China servicing of that
equipment that was sent before the controls went into effect so
that we can ossify those tools that they already have. And of
course, we're also looking at components. We've stopped
components going. We're working with our allies to bring them
to--for them to do likewise.
Mr. Stanton. In your experience, how do PRC actors work
around U.S. controls? And how can we better crack down on those
measures?
Mr. Estevez. For the most part for semiconductor tools,
they're huge, a couple containers' worth of equipment to move.
So it's fairly hard for them to move around that. They do look
to the secondary market.
The Koreans have stopped secondary market sales. That's
critical to us. And there's always a way. We have enforcement
activity and plus working with DOJ. We were prosecuting when we
see violations of our controls.
Mr. Stanton. Do you have the tools you need, or could
Congress provide you more tools in this important effort?
Mr. Estevez. Congress could absolutely provide me more
resources. I have 150 export control agents. I have antiquated
systems that they operate on. We could do better, and we're
doing pretty good without those resources.
Mr. Stanton. I appreciate the testimony. Mr. Chairman, I
yield back.
Chairman McCaul. The gentleman yields. Chair recognizes Mr.
Kean.
Mr. Kean. Thank you, Mr. Chairman. And thank you to our
witnesses for being here today. Under Secretary Estevez, Under
Secretary Fernandez, do you believe agree that China is
actively supporting Russia's war in Ukraine and Iran's support
for Hamas?
Mr. Estevez. That's actually a more nuanced question than
it would seem. But there's certainly Chinese companies who are
certainly providing capability to Russia. And we are putting
Chinese companies that we see doing that where there's American
technology involved on the Entity List.
Mr. Fernandez. Look, the unlimited partnership between
China and Russia is a reality. Russian oil exports to China
have increased dramatically as well as PRC exports back to
Russia. That is a concern, and we continue to monitor it.
Mr. Kean. So at what point would you impose countrywide
restrictions on China, not just Entity Listings, either to
impair China's ability to support these countries or to impose
consequence?
Mr. Estevez. Yes, sir. You have to ask--I'd have to know
what you want to put countrywide controls on. Semiconductors,
for example, much of the semiconductor production does not flow
from the United States. So our ability to control is somewhat
limited.
We have used the foreign direct product rule and we
continue to do that. So then it's what's the distribution
network flow. And we're working with American companies quite
frankly so they cutoff that flow as well.
Mr. Kean. OK. Under Secretary Estevez, ensuring full and
robust enforcement of U.S. export controls is vital and
necessary to prevent Iran from tapping into U.S. goods and
technology, missile and drone production. Given the ongoing
proliferation of Iranian missiles and drones often made with
U.S. origin components, can you please--and in--excuse me, in
China, can you please explain how this Administration is
working to restrict Iran's access to U.S. origin technology?
Mr. Estevez. And I'd say it's really not U.S. It's U.S.
company branded, not necessarily made in the United States. I
just need to put that nuance.
We have about 20 companies related to Iranian drone and
missile production on the Entity List and with foreign direct
product rule. We've also put in place a foreign direct product
rule on commodity level chips, CAR-99 chips, which are not the
highest end chips that we control at a higher level. We put
foreign direct product rule on those going to Iran.
So again, we can stop that flow. And when we catch people
violating that flow, it depends on where they are. We can use
the prescribed Entity List. There's a number of tools that we
are using.
Mr. Kean. Do you have an update that you can share with us
on the outcomes of the task force set up to look into the
presence of U.S. and European components, including American
made microelectronics and Iranian made drones, including those
used by Russia?
Mr. Estevez. I mean, we are always taking apart stuff from
Ukraine and then assessing where it came from. There's also
counterfeits and other flow that goes into that, even thought
it might look like a U.S. part. We're working with companies,
again, to stop them from selling to distributors that we
identify that could be bad distributors. In other words, their
distribution network which is generally good is now providing
stuff to Russia or selling to companies that are providing to
Russia. And again, we're using the Entity List as a tool in
that regard.
Mr. Fernandez. I would just add that in the last 2 months,
Alan, our Under Secretary at Treasury, our counterpart and me
have been calling companies specifically in order to tell them
that there are unintended leakages of their products and up in
the Ukrainian battlefields. And we're getting their cooperation
to try and staunch that flow.
Mr. Estevez. And we're giving them the data so that they
can take action.
Mr. Kean. Thank you. I yield back.
Mr. Green [presiding]. The gentleman yields. We now
recognize Mr. Costa for 5 minutes of questioning.
Mr. Costa. Thank you very much, Mr. Chairman. I think that
the importance of the hearing regarding countering China on the
world stage and not only dealing with American businesses but
the Chinese military as it reflects to the threat to our part
of the world and the Pacific is critical. And I commend the
committee for this hearing.
I want to get a different twist on this because my view is,
is that for any Administration and for Congress, China is an
adversary, China is a competitor, and China is a vast market.
And that makes it difficult. And we're talking about the threat
that is posed here as it relates to the Nation that it's an
adversary to us and to our allies.
I want to do it in context of legislation that we've been
looking at here that would counter that. I believe the
Administration supports the effort on the supplemental piece of
legislation that would've provided 2.58 billion dollars to
bolster U.S. and allied capabilities in the Indo-Pacific. Is
that correct?
Mr. Fernandez. Yes, sir.
Mr. Costa. And we have a supplemental--we have an
alternative to the supplemental that we are trying to get heard
on the House floor that would provide 4.9 billion dollars to
provide deterrence and operations in the Pacific. I do not know
if you've seen it. But if you're supporting the Senate
bipartisan package, I would assume it you'd support this as
well if we could get it for a vote on the floor. Is that
correct?
Mr. Fernandez. Congressman, we requested 4 billion dollars
in discretionary funding for----
Mr. Costa. Right. Well, my----
Mr. Fernandez [continuing]. Indo-Pacific----
Mr. Costa [continuing]. Time is limited. But basically, you
want additional support, right?
Mr. Fernandez. Yes, sir.
Mr. Costa. OK.
Mr. Fernandez. And the reason for that is we've got to show
up. Countries are looking for----
Mr. Costa. I agree. And we got to show up not only here but
as it relates to Ukraine. And I want to put these two in a
comparative analysis. It's been 2 years since Putin launched
his brutal invasion of Ukraine. Last week, Putin delivered an
annual State propaganda or the union to Russia and said that as
far as he went to threaten nuclear war if NATO sends troops to
Ukraine.
But let's be frank about it. Russia today is a syndicate, I
think, that's masquerading as a nuclear--a nuclear syndicate
masquerading as a country with a mob boss called Putin. That's
how I describe modern day Russia. And if you do not view that,
look what he did just 3 weeks ago with his adversary, Alexei
Navalny.
He did what mob bosses do. He eliminated his opposition.
But I think that China is watching what we're doing in Ukraine
just as Russia is trying to determine what is the resolve of
the United States. And that's why I think the two are in the
same category frankly.
And whether or not Congress provides this supplemental aid
in any form, both to protect our interest in the Indo-China as
well as protect our interest in Europe with our allies there. I
met with a group of Ukrainian officials 3 weeks ago when I was
in Kiev. And you see a group of brave Ukrainian folks that are
not only fighting for their sovereignty and their democracy but
for ours throughout the world which is what Taiwan is trying to
do is maintain their sovereignty and their democracy as well as
our allies in Japan and South Korea and Australia.
And so I think there's a good comparative analysis about
what we do with legislation to provide support not only as it
relates to the Pacific but also as it relates to our European
allies. But we're stuck with gridlock here in the House of
Representatives. We cannot get the supplemental bill to the
House floor.
We cannot even get an alternative to the House floor that
would provide funding for Ukraine, Taiwan, and Israel. Ukraine
is fighting and putting up a fight that I think is in our
interest just as our support for Taiwan and our allies in Japan
and South Korea. When you look at what's happened in Ukraine,
they've regained over half the territory that Russia has took.
They've reopened the Black Sea. And they've stricken over
two-thirds of Russia's tanks and 315,000 of Russia's troops.
But I think for many of my Republican colleagues, I think
they're showing weakness to Putin.
I think this is analogous to 1939 when Neville Chamberlain
went an appeased Adolph Hitler because people recognize
strength. And so I think the Speaker and my Republican friends
need to talk about putting together a package that will provide
supplemental aid to Ukraine, to Taiwan, and to Israel. Either
of these efforts I think would really reflect a bipartisan
support that has been there traditionally.
A significant amount of the funding by the way says in the
United States as we build new weapons and replace weapons in
our own stockpiles. So I think this, whether it's how we fund
it in the supplemental package or whether we fund it in another
way. The longer we delay aid to Taiwan and to Ukraine, the more
Xi and Putin will exploit the situation.
That's the bottom line. Or adversaries respect strength.
And Putin won't stop until Eastern Europe is in its grasp. And
Xi is watching to see whether or not the U.S. will support its
allies. Do you agree?
Mr. Estevez. One hundred percent concur.
Mr. Costa. Let me close, Mr. Chairman.
Mr. Green. Very quickly, yes.
Mr. Costa. To quote an American President who understood
strength, President Ronald Reagan said it best in 1984 when he
said, ``To keep peace, we and our allies must be strong enough
to convince any potential aggressor that war could bring no
benefit and only disaster.'' I think by abandoning support and
funding for Taiwan, for Ukraine, and for Israel sends an
opposite message to our adversaries and the rest of the world.
The world is watching. And I ask my Republican colleagues are
we going to stand up with democracy or are we going to stand up
with Putin and Xi.
Mr. Green. The gentleman's time is expired. I now recognize
the gentleman from Tennessee, Mr. Burchett, for his 5 minutes
of questioning.
Mr. Burchett. Thank you, Mr. Chair. Mr. Estevez, on October
27, 2023, the Bureau of Industry and Security issued a 90-day
pause on firearms exports. That pause should've ended January
5th, 2024. Why is it still in place?
Mr. Estevez. It's still in place, Congressman, because we
were trying to craft the policy that meets the goals of
stopping diversion of guns to criminal enterprises while still
allowing proper sale of guns across the globe.
Mr. Burchett. Where are we at in that process?
Mr. Estevez. We're close. I cannot give you a timeline,
sir.
Mr. Burchett. I have a hard time being close when we're
dealing with something that I think is constitutionally sound.
During the campaign speech in 2019, Joe Biden referred to
lawful firearms manufacturers as the enemy. Do you think lawful
firearms manufacturers are the enemy?
Mr. Estevez. As someone who used to buy firearms for the
military, no.
Mr. Burchett. What if they want to buy them for civilians?
Mr. Estevez. Constitutional right.
Mr. Burchett. What's your opinion of that?
Mr. Estevez. It doesn't matter what my opinion is. My
opinion is that----
Mr. Burchett. I think we know. Did you or anyone at
Department of Commerce have conversations with the White House
Office of Gun Violence Prevention prior to this decision?
Mr. Estevez. This decision is going through the normal
interagency process.
Mr. Burchett. Did you have that conversation?
Mr. Estevez. This process has gone through the normal
interagency process.
Mr. Burchett. So you're not going to answer that. You're
not going to answer that.
Mr. Estevez. I'm also talking to industry and Congress.
Mr. Burchett. So the answer is yes?
Mr. Estevez. We've talked to lots of people involved in
this process.
Mr. Burchett. I'll take that as a yes. How many licenses
have been affected by this, sir?
Mr. Estevez. The pause has affected licenses that were
pending. And it's a really very small number. Maybe 1,000
applications, about 10 million dollars a year of impact for the
pause. We have seen 6.2 billion dollars worth of pending
firearms licenses being processed.
Mr. Burchett. Would 4,000--the number 4,000 surprise you?
Mr. Estevez. Four thousand?
Mr. Burchett. Four thousand licenses have been affected by
this.
Mr. Estevez. I said 1,000.
Mr. Burchett. One thousand. Has the Bureau of Industry and
Security review existing licenses for possible revocation or
suspension?
Mr. Estevez. The only--we would do that if we see certain
violations of the end user. That could happen. But that's not
part of this process. That can happen in the regular course.
The diversion of a weapon from an end user that was legally
sold, we would stop those sales.
Mr. Burchett. Mr. Chairman, this is an absolute
weaponization of the Federal Government by the Biden
Administration from the moment Mr. Biden began campaigning was
dead set on attacking lawful firearms manufacturers. This is
the attack on the livelihood of honest and hardworking
Americans. This isn't about the Second Amendment.
This is about how people make a living. The government
should never have the power--should never have the power to
stop lawful Americans from providing for themselves and their
families. But this Administration has taken upon itself. Thank
you, Mr. Chairman. I yield the remainder of my time.
Mr. Green. The gentleman yields. And Mr. Estevez, if you
would, make sure the mic--kind of pull it in a little closer.
We're having a hard time getting you on the recording.
Mr. Estevez. You got it.
Mr. Green. Thank you. I now recognize Mr. Amo for his 5
minutes of questioning.
Mr. Amo. Thank you, Mr. Chairman. And thank you to our
witnesses, Under Secretary Fernandez and Under Secretary
Estevez. This morning I voted in support of the Science and
Technology Agreement Enhanced congressional Notification Act
which would require reports to Congress on science and
technology agreements between the United States and the
People's Republic of China.
I was proud to vote for this bill because bilateral science
and technology agreements are essential for the United States
to facilitate international cooperation with the PRC.
Importantly, this bill also recognizes that research and trade
must be beneficial to Americans and prevent the People's
Republic of China from using research and technology to harm
our national security. The House has recently taken action on
concerns that companies owned by entities in the People's
Republic of China are collecting sensitive data on United
States citizens.
President Biden has also expressed concern about this data
being transmitted to the Chinese Community Party and issued an
executive order late last month to prevent data brokers and
other commercial entities from selling Americans personal
information to countries of concern. At a high level, I just
wanted to ask Mr. Fernandez, what keeps you up at night?
Mr. Fernandez. On the STA?
Mr. Amo. No, just more broadly with China and their
engagement on data beyond.
Mr. Fernandez. Thank you. What keeps me up at night? Well,
it's a little bit outside of this hearing today. I've been to
Kiev and we've had a lot of discussions here about Ukraine.
And one of the things that struck me as I watched is older
people would walk past bombed out building looking straight
ahead, determined not to let Russian bombs affect their daily
lives. I've been in Warsaw in a children's and women's center
where millions of Ukrainian women and children are refugees. I
was a refugee myself. I know what that feels like.
I've seen mothers sitting on a corner in that center
quietly sobbing so that their children would not hear them.
These are children who refuse to paint with colors. They paint
in black and white. And what they paint is a plane strafing
Ukrainian cities. They prefer that. They cannot bear to paint
in colors.
I think--when I cannot go to sleep, I think of these older
citizens. I think of the women and children in Warsaw. And then
I think of their husbands and sons on Ukrainian battlefields
that right now as we speak these people have to choose when
they're facing a Russian onslaught whether they have enough,
whether to fire or not, because they may not have enough
bullets.
And I'll be frank with you. I look at myself. I think how
could I look these people in the eye? And the reason I saw this
is that Ukrainians do not have a Plan B. They know what comes
next if Putin wins.
Russia has tried to deny the country's existence before.
You've got to go back to the 1930's. Ukrainians lost almost 10
percent of their population through the Great Famine.
When mothers dying from famine, dying from hunger would
leave notes for their children saying, if I die, it's OK to eat
me. That is a historical fact. They lost thousands more during
The Great Terror, and they know exactly what happened in Bucha
a couple of years ago.
And so you ask me what keeps me up at night. Well, the
world is watching. It's watching us in Ukraine. It's watching
in Poland. It's watching us throughout Europe. It's watching us
in Russia. And it's watching us in China.
And you know what? It's also watching us in Taiwan. And so
I'm grateful for this hearing about countering China. And I
look forward to questions on that on my specific remit.
But I will tell you this. And I leave you with anything
today is this. If you want to counter China, fund Ukraine. Beat
Putin. That is the best that we can do to counter China.
Mr. Amo. Well, Mr. Fernandez, I appreciate you taking a
broad interpretation of my query because that should keep us
all up at night. That's why we're all compelled to action which
is why I hope--and not just hope, but hope that we turn that
concern, that fear into real action on the floor of the House
of Representatives as soon as possible. Thank you, and I yield
back the remainder of my time.
Mr. Green. The gentleman yields. I now recognize myself for
5 minutes of questioning. The United States of America is still
the greatest and most powerful nation in history. And we can
win any competition with Communist China.
The only question is whether we're going to do it the smart
way or with our hand tied behind our backs. At every turn, the
Biden Administration has hamstrung American businesses and
ceded ground to the Chinese communists. Most recently, the
Department of Commerce which has the statutory duty to foster
and promote foreign domestic commerce completely stopped the
issuance of renewal and renewal of certain export licenses to
American exports of firearms, ammunition, and related
materials.
This pause was dumped on American businesses with zero
warning and zero stakeholder engagement. This action by the
Bureau, Mr. Estevez, is costing this industry over 100 million
dollars and it's creating a mass uncertainty. You said the
pause would last approximately 90 days.
We're on Day 146, a 50 percent increase in what you
predicted. I appreciate Mr. Burchett bringing that up. In
November when this pause was first announced, I led 87 of my
colleagues and sent you a letter demanding an explanation on
this unprecedented action.
All we received in response was an unsubstantial letter
that grossly misrepresented reports from the Government
Accounting Office, the GAO, and the ATF. First of all, the GAO
report was addressed to the Department of State, the Department
of Commerce. And it's only recommendation was for State to
increase firearms trafficking investigations.
For the Department of Commerce to claim this as
justification for freezing an entire industry is absolutely
absurd. Second, the GAO report repeatedly emphasized that
existing data is not sufficient to warrant permanent changes to
export policies. That's a quote, and that trafficked firearms
are overwhelmingly sourced through the black market.
Even the ATF report openly admitted that less than 1
percent of the firearms lawfully exported from the U.S. were
associated with an international gun crime. Stopping the lawful
exportation of firearms does absolutely nothing to prevent
international gun crimes. But it will destroy an American
industry, and people will lose their jobs.
Rather than facilitate Commerce and help our businesses
compete against China, BIS is targeting American gun exporters
for crimes they did not commit while the real perpetrators of
violence go unpunished. The industry is already highly
regulated. Any action to limit U.S. participation will only
allow countries like China to step into the void.
China is among the largest exporters of these types of
firearms. And it's well known that the CCP strategy to combat
the United States is to destabilize western hemisphere by
trafficking its fentanyl precursors. So there's no reason to
think that they won't do the same with firearms.
To right this wrong, of course, I introduced the Protect
American Gun Exporters Act. The bill would force the Department
of Commerce to stop this insane policy. It's imperative that we
end this so-called pause and allow American exporters to
compete.
If the Bureau of Industry and Security doesn't change
course, international gun crimes will only increase. And China
will step into the vacuum. And I can assure you the CCP doesn't
care who it's selling to or worse, other nefarious people.
Mr. Estevez, what is the delay? Why are we still--you said
90 days. You got that wrong. Why are we still not done with
this?
Mr. Estevez. Thank you for that, Congressman. The pause is
on a limited small sector. Most gun sales are still taking
place. Gun sales to Europe, and to Asian allies, are all taking
place which is where the bulk of the gun sales do take place,
or military to military, or government to government----
Mr. Green. We're talking hunting stuff.
Mr. Estevez [continuing]. Continue taking place.
Mr. Green. That's exactly right.
Mr. Estevez. So it's a small segment of gun sales that are
on pause.
Mr. Green. Why is it not done yet?
Mr. Estevez. It's not done yet because we are trying to
craft a rule that gets after the issue of diversion to criminal
elements which I know we all want to stop----
Mr. Green. True.
Mr. Estevez [continuing]. Right? So it's a shared value and
still allow valid sales in the world. So we're trying to craft
it so that we get after that small segment----
Mr. Green. You understand----
Mr. Estevez [continuing]. To be diverted.
Mr. Green [continuing]. Supply chains, right? If one guy
wants something, let's say I want, I do not know, Widget X, and
this supplier isn't getting it to me. I'm not going to sit and
wait forever for you to approve Widget X to be sold from your
country. I'm going to go look somewhere else.
And then when that supply chain is established, our guys
have lost the business. And oh, by the way, it's not just the
gun manufacturers. Think of the shippers and they're mostly in
Democrat districts like Philadelphia, right? Those are jobs
lost. And we may very well--I mean, I do not know. Is it your
intention to put this industry out of business?
Mr. Estevez. Congressman, most of the gun sales that are
not impacted by this pause, so they're still taking place
including shipments around----
Mr. Green. We've got manufacturers in my district with
contracts over 100 million dollars and they cannot ship a
thing. So you tell me that it's just not----
Mr. Estevez. No existing licenses were stopped. So if they
had an existing license, that's still valid.
Mr. Green. These are contracts that are signed, and they're
saying they cannot ship.
Mr. Estevez. Existing licenses went. So the pause only
impacted a small amount. And of course, I'm talking to NSF
repeatedly to get this right, Congressman.
Mr. Green. OK. Well, we need to get this done. We need to
get this done. Thank you, and I yield. I now recognize Mr.
McCormick, the gentleman from Georgia, for 5 minutes of
questioning.
Mr. McCormick. Thank you, Mr. Chair. Chinese theft of
intellectual property of the United States military technology
is a major problem. In a 2022 report, the Washington Post
mapped more than 300 sales over 3 years from U.S. companies
producing technology that went directly to Chinese companies
involved in CCP, hypersonic, and missile programs.
In the report, the Washington Post claimed it spoke to six
Chinese scientists, and quote, ``working in military labs and
universities who described almost unfettered access to American
technology with applications in design in testing of
missiles.'' Some of the most effective missiles that can be
used against American military personnel and equipment. Does
either one of you know how many Chinese nationals are students
in our top universities here in America right now?
Mr. Fernandez. I do not.
Mr. Estevez. I do not either. But there's lots of Chinese
students in America.
Mr. McCormick. Sure are. Chinese national students, over
300,000 easily. We average probably over 350,000 Chinese
nationals at our top universities, learning our best technology
to take it right back to China along with all the other secrets
to make the best technologically advanced weaponry against the
United States, including ship making too, by the way. Do we
know how many H1B visas have been issued for Chinese nationals
that are currently working in the DOD or protected technology
such as AI here in America?
Mr. Fernandez. Congressman, the answer is I do not have an
exact right. I can answer your question----
Mr. McCormick. Approximately?
Mr. Fernandez. I do not know, sir.
Mr. McCormick. OK.
Mr. Fernandez. I can take that back.
Mr. McCormick. OK. So neither one of you knows. I do not
know either, but I bet it's a huge number because it's capped
at 7 percent per country. And I guarantee you where they're
putting the applications are is to take those exact things that
the Chinese national scientists basically said, we have
unfettered access to these technologies. I find it somewhat----
Mr. Estevez. I would say, Congressman.
Mr. McCormick. I didn't ask a question, sir. One second.
Thank you. When we talk about Bureau of Industry and Security
and the secrecy--and literally lay waste to our military. And
I'm a military man for 20 years. It worries me that they have
missiles and other technologies that could hurt us and lose us
a war in the future.
We actually have H.R. 6542 which I hope will be passed soon
that will actually limit Chinese nationals along with Iranian
nationals and North Korean nationals and Russian nationals from
having H1Bs that gives us access to the DOD and other--I would
suggest that your bureau is also work in conjunction with us to
limit that access for national security and for your own good.
That's just an encouragement. To add to that, China, the CCP
has announced they're going to take over Taiwan by 2027.
Approximately how many AI percentage--in percentage rate IT
production, how much of our AI production is produced over in
Taiwan right now?
Mr. Estevez. About 85 percent of the advanced chip
production in the world is in Taiwan.
Mr. McCormick. For AI, it's about 100 percent. They produce
about 90 percent of the world's AI chips, the other 10 percent
in Samsung. So my point is if China has unfettered access to
our technologies and now they say they're going to take the one
place that we make all of our AI chips overseas, that is
extremely concerning.
The CHIPS Act did not correct that, by the way. I just want
to make sure the public knows this, that we're not doing
anything to protect the most valuable technology and the most
transforming technology we've ever had in human history. It
worries me because in China, quite frankly, there's no civilian
government divide.
And any company helping produce new technologies is tied to
the CCP and their military. The U.S. should not be directly or
indirectly funding Chinese military companies. They must clamp
down on the blatant espionage and cyber crime that steal U.S.
technologies and military innovations. I know I'm almost out of
time. But I want to know how you guys are working to protect
America, its best interest, whether it be in economy or
military or industry. All the things we need to do to protect
America and the next generation in the most important
technologies that will advance our ability to fight wars and to
advance our economy.
Mr. Estevez. Congressman, let me jump real quick. I know 36
years, DOD sustaining and building weapons for the U.S. forces
so that we always have technological overmatch whenever we send
sailor, soldier, airman, and Marine, space guardians to the
battlefield.
Mr. McCormick. Let me also----
Mr. Estevez. We have put sweeping controls on the most
advanced chips, the chips that you mentioned made in Taiwan,
for artificial intelligence, the future of warfare, and the
tools to make those chips to China. We're going to stop the
Chinese from being able to use our technology against us.
Mr. Fernandez. Let me just add something, if I may. Our
best in the world universities thrive, in part, due to the fact
that they're open to the brightest minds in the world. We
continue to admit and welcome the vast majority of Chinese
students who want to come here to pursue degrees and make
tangible contributions in their academic field. And they can
also benefit the U.S.
We review every visa in sensitive disciplines that could
impact national security. We actually engage in a targeted
screening process. So we are aware of this. But we also have to
be careful. And I speak as someone who used to be involved in
the university. We've got to be careful about denigrating and
targeting specific nationalities of students.
Mr. McCormick. I think we also have to be careful to
protect the national interest of the United States against all
enemies, foreign and domestic. And I think it's naive to think
that the United States is going to be safe from the CCP who's
actively engaging 350,000 students here in the United States at
our technologically advanced universities if we think we're
going to vet them enough to keep our secrets from them being
used against us. With that, I yield. Thank you.
Mr. Green. The gentleman's time is expired, and he yields.
Now I yield to Mr. Huizenga for 5 minutes of questioning.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
Under Secretary Fernandez, last week I sent you a letter
regarding the increasingly concerning issue of China's economic
coercion tactics, particularly in Europe to influence the
economic and political decisions of U.S. allied nations.
These tactics range from targeted trade restrictions to
leveraging investments in critical infrastructure as a means of
exerting political pressure. We have all heard of the examples
from Lithuania and Norway where particular industry caught the
full force of these PRC tactics in the form of embargos. All of
this was due to a political decision made by their government
and their governments and entirely out of their own control.
So first, how is the Department of State addressing the
impact of China's economic coercion on Europe? And what
measures are being considered to support our European allies
encountering these tactics?
Mr. Fernandez. Thank you for your question, Congressman.
Earlier I spoke of what we've done specifically in Lithuania
which was the first test case that we had. We worked
interagency. We were able to double the export credit that the
PRC had provided.
We got them additional markets through our posts. The
Department of Defense signed the procurement agreement. Right
now Lithuania is thriving. And they are grateful for what we
were able to do.
Since then, we have been engaging our interagency. We now
have a toolbox. We've also engaged in a number of allies and
partners. We are coordinating with them as well.
Mr. Huizenga. Yes, let me explore that a little bit.
Mr. Fernandez. My point is we now receive on a monthly
basis, we now receive inquiries from countries that are afraid
of being targeted by the PRC and we're helping them.
Mr. Huizenga. So what are you doing to develop that unified
strategy against this coercion and making sure that our
responses and our allies' responses are aligned and effective?
Mr. Fernandez. Thank you for your question. We have done a
lot. We engaged a number of our allies and partners. G-7 has
actually taken as one of its main projects economic coercion
and responding, creating a platform for economic coercion. We
have progressed on this. We're not perfect. We could do more.
Mr. Huizenga. OK.
Mr. Fernandez. We'll get better. But we're quite good at it
by now.
Mr. Huizenga. And what role has the U.S. played in
strengthening international norms and legal frameworks to deter
economic coercion and protect the sovereignty of nations in
making their own political decisions and economic decisions? In
other words, are we able to do anything on that international
stage with norms and structures that mitigates or lessons the
impact of China or strengthens our allies in other nations?
Mr. Fernandez. Well, the Lithuania example convinced
Europeans to pass an anti-coercion instrument, and ACI. We
welcome that. But they also filed a case against the PRC. I
think rather than legal norms, I think we just got to beat
them. And that's really what we're trying to do.
Mr. Huizenga. OK. Appreciate that. Under Secretary Estevez,
do you believe that Chinese facial recognition is dangerous to
U.S. foreign policy interest?
Mr. Estevez. I believe facial recognition technology is
widely used.
Mr. Huizenga. Yes.
Mr. Estevez. But Chinese technology, capturing faces of
U.S., I'd be concerned about, yes.
Mr. Huizenga. Are you tracking reporting that China has
been exporting facial recognition technology similar to systems
used against the Uyghurs to countries like Burma, Myanmar which
are being run by military----
[Simultaneous speaking.]
Mr. Estevez [continuing]. On the Entity List. I cannot stop
outbound exports from China.
Mr. Huizenga. But are you aware of those reports and are
you tracking it?
Mr. Estevez. I am not. But it doesn't surprise me.
Mr. Huizenga. OK. Well, it's our understanding that
companies involved include Huawei, Hikvision, and--Hikvision at
least on the Entity List. Will BIS take action to fully include
Huawei on that Entity List?
Mr. Estevez. Huawei is on the Entity List.
Mr. Huizenga. OK. And so if they're on the Entity List, I
thought I just heard you say that if they aren't on the Entity
List, you have no ability to track that or no ability to----
Mr. Estevez. No, I have no ability to stop exports out of
China. I stop exports into China.
Mr. Huizenga. OK. All right. Secretary, thank you.
Appreciate that. Secretary Fernandez--oh, I'm seeing my time is
up. But I'm going to followup on a letter. We did have a second
letter to you, and I would appreciate your timely response on
that.
Mr. Fernandez. Thank you. And will respond to your letter.
Mr. Huizenga. OK. Thank you. With that, Mr. Chairman, I
yield back--or Madam Chair. We changed chairs while I was busy
with my questioning. So Madam Chair.
Mrs. Kim of California [presiding]. I'd like to now
recognize gentleman from Ohio, Mr. Davidson.
Mr. Davidson. I thank the gentlelady. And I thank our
witnesses. Appreciate the work that you do. It's an incredibly
important mission for our country that it go well. So for your
leadership and for the people that work under your supervision,
I wish you great success.
I am concerned prior to Congress, I came from a
manufacturing background. And American companies can compete
with other companies very successfully. But with China in
particular, we're not competing with companies. We're competing
with a foreign government. Is it either of your assessment that
China is in compliance with their obligations under the World
Trade Organization treaty?
Mr. Fernandez. I would defer to my colleagues at USTR on
that. We have--I can tell you we have lots of concerns about
the fact that they compete unfairly. They have subsidies. They
have state-owned enterprises. But I would specifically in the
WTO, I would let my colleagues at USTR answer that.
Mr. Estevez. Likewise. That's a USTR question. But I, like
Under Secretary Fernandez----
Mr. Davidson. That's very deferential of you. But let me
tell you, they're not.
Mr. Estevez. Subsidies.
Mr. Davidson. No one in the country believes China is a
market economy. And the base promise that they made in exchange
for these special privileges would be that they would function
as a market economy and they do not. They do not just do that
to the United States, though. They do that to countries around
the world.
They block market access. They shape it. They steal
intellectual property frankly with a whole of government
approach. None of these are market behaviors.
The subsidies are very targeted. And because of that, I
think it's especially important that we pay attention to our
supply chain risks. So I think this falls into your purview
very directly for both of you. Is China more--or is the United
States more or less dependent upon supply chains from China
over the time you've been in office and how so?
Mr. Fernandez. I'll start there. I think the answer we've
made great progress on supply chains. And I will cite the
Inflation Reduction Act. We've gotten--just in Georgia last
week when I was there a month ago actually--12 billion dollars
in terms of Korean investments in battery manufacturing.
In the critical mineral space, we've created the Minerals
Security Partnership in order to deal with the vulnerability
that you correctly point out exists. We are very vulnerable to
Chinese control of critical mineral supply chains. But we've
created a partnership of 14 counties plus the European Union.
It includes India. It includes 55 percent of the world's
GDP. And we're making progress. We didn't get into this problem
just now.
Mr. Davidson. We certainly didn't get into this problem
just now. But I do not know that we're making incredible
progress. You cite the Inflation Reduction Act which does spend
a lot of money but I wouldn't say that it's solving the
problem.
I am glad that one of the big investments is in Ohio with
Intel. We welcome them and hope they continue to building their
plant their which was paused for a bit. We hope the
Administration will work to get the permitting accomplished
that they need.
But when we look at the core dependents upon China, one of
the areas that you cite has stalled battery production in
plants all over the place because they cannot get access to
cobalt. And that's because China controls it. And we're not
making progress on some of these critical minerals.
We're addressing it. We're talking about it. We're giving
speeches about it. We're spending money to do it, but it is not
getting solved. So what on the horizon do we see that is
actually going to change the status quo?
And when I hear--I think we have Department of Education
witnesses here defending Chinese students. And the reality is
we're supposed to defend our market from Chinese influence and
control and frankly national security vulnerabilities. So what
on the horizon is actually addressing it?
Mr. Fernandez. Sir, the Inflation Reduction Act has spurred
a lot of investment in U.S. battery manufacturing. It's created
jobs. Right now in just a year and a half, we have over----
Mr. Davidson. The whole thing is a Green New Deal. All
right? So it isn't. You're killing American energy. We're not
exporting American energy. It's making us more dependent upon
China, not less. And we've got the Administration foolishly
banning electrical steel.
They're trying to stop American companies. The only
intellectual property is American, and the Chinese are stealing
our uniform grain electrical steel that we should be building
our electric grid on. And you guys are facilitating it under
the Green New Deal co-branded as the Inflation Reduction Act.
Mr. Fernandez. I'm sorry. The numbers just do not----
Mrs. Kim of California. The gentleman's time is up.
Mr. Fernandez [continuing]. Support that.
Mr. Davidson. I yield.
Mrs. Kim of California. Thank you. Let me now recognize the
gentlelady from North Carolina, Ms. Kathy Manning.
Ms. Manning. Thank you, Madam Chair, thank you, Ranking
Member Meeks, for organizing this hearing. And thank you to our
witnesses for your service. Under Secretary Fernandez, I am
very concerned about our adversaries' attempts to dominate the
next generation of critical technology. And one area that I do
not think gets enough attention is Russian and Chinese attempts
to influence and dominate international technical standards
through the ITU, IEC, the ISO, and IETF. Does the State
Department have a comprehensive strategy to counter their
malign influence in these critical standard setting bodies?
Mr. Fernandez. Thank you for your question. That actually
is something we have spent a fair amount of time on. Three
years ago, it dawned certainly on me that the Chinese were
dominating a number of the international organizations.
We put together a group to work with. And then that's--at
the State Department, one of my colleagues is leading that. We
also started working with our allies and partners. And in fact,
this was one of the points discussed in the Trade and
Technology Council with the EU. Since we started working on it,
we've had some, I think, major successes.
We've been able to support the winner in the ITU
Telecommunications Union election, an American. We've also been
able to support the winning candidates in a number of the other
organizations, including ICAO in Montreal. So this is something
that we are spending a lot of time on because you're right.
Standards will dominate, will set the table for things like 6G,
submarine cables, and the number of the telecommunications in
ITU technologies that are coming down the pike.
Ms. Manning. Thank you. Under Secretary Estevez, as head of
BIS, you oversee the office of anti-boycott compliance. This
critical office ensures that American citizens and businesses
are not forced to comply with unsanctioned foreign boycotts,
including against our ally, Israel. And since the October 7th
terrorist attacks, had you seen more demands by foreign actors
for American businesses to boycott Israel?
Mr. Estevez. Nothing that's come to my attention on that.
But we have strengthened our anti-boycott rule. In the Office
of Export Enforcement, we're giving people credit for self-
disclosure. We're asking for self-disclosure. But we've also
put if you do not self-disclosure and we stumble across you,
the administrative penalties are going to be higher.
Ms. Manning. I hope you will keep an eye out for those
kinds of boycotts because with everything that's going on in
the Middle East and with all of the attacks on our ally,
Israel, those boycotts are sure to erupt. And I'll ask both of
you. How do State and Commerce regularly engage with private
sector and industry leaders? Are most American companies
supportive of an aligned with our geopolitical strategy toward
China? And what can we do if they're not?
Mr. Estevez. I'm obviously through my export control
regimes stopping billions and billions of dollars of sales. I
spent a lot, a lot of time talking to American companies about
why we're doing that. They may not be happy of the end game,
but they're supportive at the end game because they see my
controls are for national security. And they see the importance
of national security. Secretary Raimondo said, democracy is
good for business.
Mr. Fernandez. I would agree with that. And in fact, Alan
and I have cooperated in a number of instances where we're
reaching out to companies for support in keeping their
technology away from Russia and China.
Ms. Manning. Thank you. And Under Secretary Fernandez, I
heard you respond to a question asked by one of my colleagues
when you said that China is watching everything we do. Russia
is watching. Ukraine is watching.
So would you agree that one of the most important things we
should be doing--in light of those countries watching what we
are doing, would you agree that the one of the important things
we should be doing is passing the Senate bill for supplemental
funding to Ukraine and Israel, the bill that the Speaker
refuses to bring to the House floor?
Mr. Fernandez. Well, as I said earlier, if you want to
counter China, fund Ukraine. Beat Putin. There's no other way
to do it.
Mr. Estevez. Critically important to our standing in the
world.
Ms. Manning. Thank you. With that, my time has expired. I
yield back.
Mrs. Kim of California. Thank you. I now recognize myself.
I want to thank both Under Secretaries Fernandez and Estevez
for appearing before our committee today. Under Secretary
Fernandez, just before today's hearing, I sent you a letter
expressing concern with the challenges that our American
businesses are facing in the People's Republic of China.
You probably heard the same thing. American businesses have
been subject to coercion behavior such as raids, confiscation
of company's property like telephones and computers. That
behavior is largely seen as retaliation against the United
States for sanctioning Chinese Communist Party officials for
their human rights abuses and also as a retaliation for the
U.S. taking action to secure its most sensitive technologies
through export controls. So what actions can you tell me that
State Department is taking to address the CCP's retaliatory
actions against American companies operating in China?
Mr. Fernandez. Thank you for your question. I received your
letter yesterday and you'll get a written response. Look, and I
get U.S. companies all the time who come into my office.
They are afraid to make their complaints known to the PRC.
So they ask us to do it on their behalf. But this is the nature
of this regime. It's not an aberration.
These reports are of serious concern to the investor
community. And what the PRC is trying to do is basically thread
a line between conducting raids in foreign companies and also
asking them to invest as foreign investors. And companies----
Mrs. Kim of California. Talk specifically about what you
are doing to help protect American interests----
Mr. Fernandez. So we----
Mrs. Kim of California [continuing]. Doing business there.
Mr. Fernandez. I'll tell you what we're doing. I engage
with them, with U.S. companies all the time. We have issued
business advisories. I have been the skunk in the room at U.S.-
China business meetings.
Mrs. Kim of California. What does business advisory entail?
Mr. Fernandez. What's that?
Mrs. Kim of California. Telling them not to do business
because of these? What does that business advisory that you----
Mr. Fernandez. It basically says----
Mrs. Kim of California [continuing]. Talk about entail?
Mr. Fernandez [continuing]. You got to be careful in the
PRC. You've got security laws that are vague, that are
arbitrary that can be used against your employees, can be used
against you. As Secretary Raimondo has said in the past, China
is taking actions that are making it un-investable. And so we
make that point.
Mrs. Kim of California. Earlier, you spoke about a toolbox
the State Department offers for countries facing economic
coercion. Can you share what tools are available for vulnerable
countries in the Indo-Pacific as well as what measures are the
Department of State implementing to better protect our partners
in the Indo-Pacific from economic coercion?
Mr. Fernandez. Well, as I said earlier, we have a number of
tools in our toolbox. Some of them, frankly, we didn't know we
had. And we were learning as we go along. EXIM Bank has been
quite helpful, the DFC, DOD, a number of the other agencies or
embassies. The Indo-Pacific opened up markets for Lithuania.
We're working with a number of other countries in the Indo-
Pacific as they express our concerns about Chinese coercion.
Mrs. Kim of California. Can you also talk about----
Mr. Fernandez. And I'd be happy--if I could, I'd be happy
in a different setting to give you some more details on that.
Mrs. Kim of California. OK. Well, can you tell me what the
Department of State's plan is to encourage American businesses
to move their critical supply chains out of China and toward
like-minded and free trade oriented partners throughout the
Indo-Pacific.
Mr. Fernandez. Let's be clear. We're talking about
derisking, not decoupling. We are not telling people to leave
China. What we're saying is we are providing opportunities for
countries that want to go elsewhere to open up factories there.
We're doing it in Vietnam. We're doing it in the
Philippines. I just came back from both places. We're doing it
in Latin America. And it is succeeding. We're getting companies
that have decided to move their offices, move their factories.
And we are supporting that through the ITSI Fund which is part
of the CHIPS Act as well as through the Inflation Reduction
Act.
Mrs. Kim of California. Thank you. One last question,
countries in the Indo-Pacific import significant volumes of
goods from PRC. And the PRC is the largest trading partner of
most countries in the region. So how big of a factor are unfair
trade practices in making countries in the Indo-Pacific
vulnerable to economic coercion?
Mr. Fernandez. They're very vulnerable. Many of them are
vulnerable which is why they come to us. And they ask us how we
can help them. And you know what? We're providing help.
Mrs. Kim of California. Thank you. I see that my time is
up. Let me know recognize the gentleman from Texas, Mr. Self.
Mr. Self. Thank you, Madam Chair. You've mentioned several
words that I wanted to pick up on, derisking. And in your
comment, if you want to counter China. So I want to pick up on
a low tech area which is the critical mineral supply.
And I very much appreciated your written testimony, Under
Secretary Fernandez, and talked about we have advantage they
cannot match, our allies and our partners. You started the
Minerals Security Partnership. Under that, you mention 14
partners, Estonia, Czech Republic, Australia, graphite in
Mozambique, the U.K., Tanzania. And you now have a forum.
And you end your written testimony with that engagement
will help ensure critical minerals are extracted, refined, and
recycled in ways that benefit all the countries involved. I
want to talk about our national interest. Forty-nine of the 50
rare earth minerals are located in Alaska.
I have in front of me a list of the 55 executive orders and
actions targeting Alaska since January 20, 2021. There was one
executive order with six critical elements to it on the day
that President Biden took office. He also revoked the DOI's
previous National Oil Reserve Alaska order.
And in 1922, he reverted the National Petroleum Reserve
Alaska back to the 2013 plan. The day he took office, he put a
moratorium on congressionally mandated add more leasing. And
there is some question about whether that was a taking of
leases that had been sold.
We also have--they pulled a--by the way, that was January
20th. The Alaska delegation, they met with him on May 24th, on
December 9th of 2021, December 2022, on March 2023. My
recommendation to the Alaska delegation, stop meeting with the
White House because after every one of their meetings, they get
more executive actions to include a preemptive veto of the
Pebble Mine area, placing new surface mining regulatory
requirements on Alaska.
These 55 actions could help solve exactly what you
mentioned in your testimony for rare earth minerals and other
critical minerals. Why in God's name are we targeting our own
domestic rare earth and critical mineral mining capacity in
favor of something called the Minerals Security Partnership
which is international?
Mr. Fernandez. A couple of points, Congressman. And thank
you for your question. No. 1, it is not--the MSP is not
necessarily for international projects. Also, we have looked at
projects in the U.S.
And second, some of the points that you just raised,
they're outside my remit. I do not deal with those issues. But
I will tell you that we very much want to find projects in the
U.S. No one country can solve this issue alone.
We have to band together with our allies and partners. And
we've got to work in countries throughout the world. And that's
what we've been doing.
And we started out with we have 23 projects in the
pipeline. And I think we will continue to get projects. And
there are projects in Alaska. We will help find investors. We
will help find financing.
Mr. Self. Just a couple of more points. First of all, I say
again, 49 out of the 50 rare earth minerals are located in
Alaska. And that's not counting the lower 48. That includes far
more.
Last, we always hear about how we are going to destroy
ANWAR with the drilling. I'll make the point that everyone
always makes. The drilling area in ANWAR is analogous to a
postage stamp on a football field. Let me say that again, a
postage stamp on a football field. Mr. Chair, I yield back.
Mr. Moran [presiding]. The gentleman yields back. I
recognize myself for 5 minutes of questions. Earlier this year,
this committee passed my bill, the No Technology for Terror
Act, codify and expand the foreign direct product rule on tech
and other know how to Iran.
I hope this bill will soon be considered on the House floor
because I think foreign robust enforcement of the FDPR on Iran
is critical to ensure Iran cannot continue to use U.S. origin
goods and technology to make its lethal missiles and drones,
the same missiles and drones being used to attack our forces
and our allies currently. Because this undermines the
international shipping in the Red Sea and Gulf of Aden as well.
Given the ongoing proliferation in Iranian missiles and drones,
often made with U.S. origin components from China, can either
of you please explain how this Administration is using the
foreign direct product rule to restrict Iran's access to U.S.
origin technology?
Mr. Estevez. Sure. Let me take that, and thank you for the
question, Congressman. And I just received your letter about
that, sort of studying for this hearing. But we'll get you a
response as soon as I can.
Mr. Moran. Thank you, Secretary.
Mr. Estevez. We invoked the foreign direct product rule to
a number of Iranian entities, about 20 Iranian entities
starting at the beginning of last year and then a number that
are involved in the building of the Russian drone factories
with Iranian technology. And we invoked the product rule on a
number of R99 products. That again, we're saying American
origin.
They're not really U.S. origin. They're U.S. company
branded that are produced elsewhere in the globe. So invoking
foreign direct product rule ensures that they are under that
and those companies understand that they are liable for
controlling their supply chains.
And my enforcement folks both through the Disruptive
Technology Strike Force as they're doing with Justice and on
their own are tracking what is flowing. And we're pulling stuff
of the Iranian battlefield. And Under Secretary Fernandez and I
are directly engaging companies whose products we are seeing
either flowing into Russian military equipment or Iranian
military equipment.
Mr. Moran. And you mentioned enforcement. So what are some
of the barriers to enforcement right now of the foreign direct
product rule? And what do we need to do to give you better
tools to enforce that rule?
Mr. Estevez. First of all, the foreign direct product rule
is actually very complicated. And we've been invoking it a lot
lately, both within China and now Russia and Iran. It is a
great tool. It is best done in consultation with allies. For
non-allied partners, we'll go after them and we'll enforce
either administratively or criminally as we assess violations.
The best thing I can get for help frankly is funding from my
enforcement team.
Mr. Moran. Are our allies cooperating with the enforcement
measures that we're trying to undertake, or are we getting
pushback?
Mr. Estevez. For allies with foreign direct product,
normally we let them know we're going to do it and why we're
doing it. And we're getting very good cooperation from our
allies.
Mr. Moran. Good. Have you guys given consideration to
expanding the foreign direct product rule to ensure that it
covers all nine categories on the Commerce control list to
potentially close all those gaps?
Mr. Estevez. The foreign direct product rule started off
really as a break glass, use in exigent emergencies. The
threats in the world have caused us exigent emergencies, but we
still try to use it cautiously and again in consultation
generally with our allies sometimes who frankly ask us to use
it so they do not have to use their own authorities to do it.
I'd have to go back and look. I'm always wary of over
broadening it because I think if we overuse it, you lose it.
Mr. Moran. No, I agree with you on that. But I mean, as you
guys have implemented this and tried to enforced it,
internally, have you said, hey, we really need to expand it in
this area or that area? Are there areas you've identified that
you really need some expansion in this arena?
Mr. Estevez. Not that I see. And I certainly have the
authority. I do not need anything from Congress in that respect
from an authority standpoint related to FDPR. But we're
certainly happy to work with you.
Mr. Moran. OK. Thank you, Mr. Secretary. Real briefly, in
February, the Administration imposed sanctions on four
companies providing materials and technology to Iran's missile
and drone programs. How extensive can you guys talk about is
China's support for Iran's weapons program?
Mr. Estevez. Again, we see, first of all, a lot of those
parts are actually produced in China and flow out which is why
we invoke the foreign direct product rule, regardless of
whether it's U.S. or not. I have 121 Chinese companies on the
Entity List related to either direct backfill to Russia or
through Iran to Russia.
Mr. Moran. Thank you, gentlemen. My time has expired. I
want to thank the Under Secretaries for their valuable
testimony and the members for their questions. The members of
the committee may have some additional questions.
And we will ask you to respond to these writing. 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. Thank you, gentlemen.
[Whereupon, at 1:03 p.m., the committee was adjourned.]
APPENDIX
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