[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
BUREAU OF INDUSTRY AND SECURITY
FISCAL YEAR 2026 BUDGET: EXPORT
CONTROLS AND THE AI ARMS RACE
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HEARING
OF THE
SUBCOMMITTEE ON SOUTH AND CENTRAL ASIA
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
June 12, 2025
__________
Serial No. 119-24
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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
62-140PDF WASHINGTON : 2026
=======================================================================
COMMITTEE ON FOREIGN AFFAIRS
BRIAN J. MAST, Florida, Chairman
MICHAEL T. McCAUL, Texas GREGORY W. MEEKS, New York,
CHRISTOPHER H. SMITH, New Jersey Ranking Member
JOE WILSON,, South Carolina BRAD SHERMAN, California
SCOTT PERRY, Pennsylvania GERALD E. CONNOLLY, Virginia
DARRELL ISSA, California WILLIAM R. KEATING, Massachusetts
TIM BURCHETT, Tennessee AMI BERA, California
MARK E. GREEN, Tennessee JOAQUIN CASTRO, Texas
ANDY BARR, Kentucky DINA TITUS, Nevada
RONNY JACKSON, Texas TED LIEU, California
YOUNG KIM, California SARA JACOBS, California
MARIA ELVIRA SALAZAR, Florida SHEILA CHERFILUS-McCORMICK,
BILL HUIZENGA, Michigan Florida
AUMUA AMATA COLEMAN RADEWAGEN, GREG STANTON, Arizona
American Samoa JARED MOSKOWITZ, Florida
WARREN DAVIDSON, Ohio JONATHAN L. JACKSON, Illinois
JAMES R. BAIRD, Indiana SYDNEY KAMLAGER-DOVE, California
THOMAS H. KEAN, JR, New Jersey JIM COSTA, California
MICHAEL LAWLER, New York GABE AMO, Rhode Island
CORY MILLS, Florida KWEISI MFUME, Maryland
RICHARD McCORMICK, Georgia PRAMILA JAYAPAL, Washington
KEITH SELF, Texas GEORGE LATIMER, New York
RYAN K. ZINKE, Montana JOHNNY OLSZEWSKI Jr, Maryland
JAMES C. MOYLAN, Guam JULIE JOHNSON, Texas
ANNA PAULINA LUNA, Florida SARAH McBRIDE, Delaware
JEFFERSON SHREVE, Indiana BRADLEY SCOTT SCHNEIDER, Illinois
SHERI BIGGS, South Carolina MADELEINE DEAN, Pennsylvania
MICHAEL BAUMGARTNER, Washington
RYAN MACKENZIE, Pennsylvania
James Langenderfer, Majority Staff Director
Sajit Gandhi, Minority Staff Director
------
SUBCOMMITTEE ON SOUTH AND CENTRAL ASIA
BILL HUIZENGA, Michigan, Chairman
SCOTT PERRY, Pennsylvania SYDNEY KAMLAGER-DOVE, California,
TIM BURCHETT, Tennessee Ranking Member
THOMAS KEAN, JR, New Jersey AMI BERA, California
KEITH SELF, Texas KWEISI MFUME, Maryland
JAMES MOYLAN, Guam PRAMILA JAYAPAL, Washington
JEFFERSON SHREVE, Indiana GEORGE LATIMER, New York
MICHAEL BAUMGARTNER, Washington JULIE JOHNSON, Texas
Caroline Vik, Subcommittee Staff Director
C O N T E N T S
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REPRESENTATIVES
Page
Opening Statement of Subcommittee Chairman Bill Huizenga......... 1
Opening Statement of Subcommittee Ranking Member Sydney Kamlager-
Dove........................................................... 2
WITNESSES
Statement of Hon. Jeffrey Kessler, Under Secretary of Commerce
for Industry and Security, U.S. Department of Commerce......... 4
Prepared Statement............................................. 7
APPENDIX
Hearing Notice................................................... 30
Hearing Minutes.................................................. 31
Hearing Attendance............................................... 32
Questions for the Record
Questions submitted from Rep. Joaquin Castro to Hon. Jeffrey
Kessler........................................................ 33
Questions submitted from Rep. Bill Huizenga to Hon. Jeffrey
Kessler........................................................ 37
Questions submitted from Rep. Kamlager-Dove to Hon. Jeffrey
Kessler........................................................ 43
Questions submitted from Rep. Michael Lawler to Hon. Jeffrey
Kessler........................................................ 45
Questions submitted from Rep. Rich McCormick to Hon. Jeffrey
Kessler........................................................ 46
Questions submitted from Rep. Keith Self to Hon. Jeffrey Kessler. 47
BUREAU OF INDUSTRY AND SECURITY
FISCAL YEAR 2026 BUDGET: EXPORT CONTROLS AND THE AI ARMS RACE
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Thursday, June 12, 2025
House of Representatives,
Subcommittee on South and Central Asia
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2172 Rayburn House Office Building, Hon. Bill Huizenga
(chairman of the subcommittee) presiding.
Mr. Huizenga. The Subcommittee on South Central Asia will
come to order.
OPENING STATEMENT OF CHAIRMAN BILL HUIZENGA
The purpose of this hearing is to examine Fiscal Year '26
President's budget request for the Bureau of Industry and
Security. This hearing will serve as an opportunity for members
to examine the Bureau of Industry and Security's critical and
growing role in the U.S., ensuring that we win the AI arms race
against the Chinese Communist Party.
Today's hearing will examine the Fiscal Year '26 budget
request for the Bureau of Industry and Security, an agency
whose mission is critical to ensuring America wins the AI arms
race against the Communist Party of China. We are at a historic
inflection point. Technologies that will define the 21st
century such as AI, biotechnology, and quantum computing are
achieving breakthroughs that increasingly sound more like
science fiction than the reality that we're used to.
These technologies have the potential to unlock tremendous
economic prosperity, medical innovations, and human
flourishing. However, they are not just drivers of economic
growth. They are instruments of military power and security as
well.
Advanced AI models could coordinate fleets of self-driving
cars in Michigan. They could also direct autonomous drone
swarms over the Taiwan straits. The nation that leads in
developing and deploying these technologies has an opportunity
to gain geopolitical advantages for decades to come.
The CCP understands this. That's why it's trying to
dominate these critical technologies by any means necessary
through State subsidies, forced tech transfers, economic
espionage, chip smuggling, and exploiting access to the West's
most innovative AI labs and universities. AI dominance is
central to the CCP's goals.
Its military modernization efforts, surveillance State, and
human rights abuses are amplified by AI. Export controls play a
crucial role in ensuring that U.S. and allied technologies are
not used to fuel the CCP's pursuit of global dominance. Amongst
its many important roles, BIS serves as a guardian of one of
the world's most valuable and powerful supply chains.
The ecosystem of advanced chips, tools, components, and
design software that underpins the development of cutting edge
artificial intelligence.Leading Chinese AI companies have made
it clear just how dependent their future is on U.S. technology.
In response to a question on what their biggest obstacle to AI
development is, DeepSeek's CEO put it bluntly. Quote, ``Bans on
shipments of advanced chips are the problem,'' close quote.
The CCP understands the importance of these AI choke
points. That's why it's working around the clock to steal chips
and exploit export control loopholes to internalize its
production. That's why this hearing today is so important.
BIS fiscal '26 budget request includes a 133 percent
increase in enforcement funding, a bold and necessary step. As
the DeepSeek CEO made evident, it's not a lack of talent
holding back China's AI development. It's the lack of access to
U.S. technology.
That's what this budget supports. It allows BIS to better
disrupt covert efforts to funnel U.S. innovation to the CCP's
military and surveillance State. Let's be very clear.
Enforcement is not about punishing innovation. It's about
protecting it.
It's about making sure that the technologies that define
the future are not weaponized against our values, our
alliances, or our own people. We also recognize that BIS
operates in a dynamic and challenging environment. The
technologies we're discussing are evolving rapidly.
BIS must become faster, more adaptive, and more
technologically capable than ever before. This subcommittee is
committed to giving the Bureau the tools and resources it needs
to meet that challenge head on. The geopolitical struggle
between America and China defines the technologies of our time.
Global AI development shaped by democratic values or
authoritarian control will depend on the decisions we make
right now about licensing, enforcement, and strategic
technology protection. I'm pleased that we are joined by
Undersecretary Jeffrey Kessler who leads BIS during this
decisive period in history. Mr. Kessler, thank you for your
service and your appearance here at the subcommittee.
The window for preserving America's technology edge is
narrow, but it does remain open. BIS with the support of
Congress must ensure America wins the AI arms race. The chair
now recognizes the ranking member from California,
Representative Kamlager-Dove, for any statements she may have.
OPENING STATEMENT OF RANKING MEMBER SYDNEY KAMLAGER-DOVE
Ms. Kamlager-Dove. Thank you, Mr. Chair. And thank you,
Undersecretary Kessler, for being here today. It is mid-June,
and you are the very first administration witness to testify
before a House Foreign Affairs Committee this Congress. I hope
the rest of the administration can follow your example.
Today, we will examine the Fiscal Year '26 budget request
for BIS and discuss the role of export controls within the
larger national security objective of ensuring U.S. leadership
in the global AI race. I say U.S. leadership because
California, my State, is the No. 1 source of semiconductor
manufacturing facilities and jobs in this country. These
equities are very important to me and to all of us.
Over the past decade, export controls administered by BIS
have become an increasingly divisive tool in U.S. foreign
policy. Today, BIS is responsible for restricting the PRC's
access to the advanced AI semiconductor chips powering China's
military and technological advances. It is also tasked with
enforcing an extensive multi-lateral export controls regime on
Russia in response to its unprovoked invasion of a democratic
Ukraine.
Yet despite its centrality to two critical national
security priorities, BIS' resources have not kept pace to meet
the demands of its responsibilities. Since 2010, BIS' budget
for core export control functions has remained relatively flat
while the number of license applications has nearly doubled
from 20,000 a year in 2012 to over 40,000 a year in 2024.
I am glad to see the significant funding increase for BIS
in the President's budget which must also be accompanied by
increased responsiveness to Congress and greater congressional
oversight. These resources will help ensure that the export
controls needed to prevent the PRC from accessing leading edge
chips and chip manufacturing equipment can be effectively
enforced. However, I'm concerned that robust export controls
cannot make up for the immense damage this administration is
doing to America's competitiveness in AI.
To win the AI race, we can't just slow China down. We have
to simultaneously speed up and sustain our lead in cutting edge
technology. Yet Trump's budget would upend the Federal R&D that
is an essential enabler of the semiconductor technology
pipeline.
The President's budget slashes the National Science
Foundation's research funding for microelectronics and
semiconductors by 54 percent. NIST which supports foundational
research to commercialize new developments in semiconductor
technology would be cut by 28 percent. This comes after
hundreds of employees working on semiconductor policies were
DOGE'd.
The Department of Energy's Office of Science which supports
national labs and the development of advanced manufacturing
processes for semiconductors in the United States is getting a
14 percent reduction. Not to mention the administration's
culture war against universities and its draconian immigration
policies, including the deployment of the National Guard in my
home city of downtown LA right now, creating a perilous
environment for the high-skilled foreign talent we are
dependent on to make up the semiconductor workforce shortage.
Trump doesn't need to force a repeal of the CHIPS Act which has
been essential to boosting domestic chip manufacturing to hurt
our advancements in AI.
Turning back to BIS, I'm concerned that Trump is treating
export controls as a bargaining chip to undo the problems he
created or as clickbait to generate splashy headlines. That's
certainly how it appeared when the administration imposed
export controls on EDA software as a response to China's
restrictions on rare earth minerals which itself was a response
to hikes in U.S. tariffs on China which were a counter to
China's retaliatory tariffs to Trump's original Liberation Day
tariffs. And that's certainly how it appeared when the
administration rescinded the AI diffusion rule right before
Trump's Gulf trip where he announced a deal with no pre-baked
security guardrails to sell tens of thousands of advanced AI
chips to Gulf companies.
Trump's self-interested foreign policymakes me concerned
that export controls which can backfire if not carefully
calibrated may be wielded irresponsibly. I hope to receive some
answers today that can help address my concerns. Thank you, Mr.
Chair, and I yield back.
Mr. Huizenga. The gentlelady yields back. The chair wants
to remind the other members of the committee that their opening
statements may be submitted for the record.
And today as I had said previously, we're pleased to have
the honorable Jeffrey Kessler, Undersecretary of Commerce for
Industry and Security from the U.S. Department of Commerce on
this very important topic today. The committee recognizes the
importance of the issues before us and is grateful that you are
here to speak with us today. Your full statements will be made
part of the record, and I'll ask that you keep your oral
remarks to 5 minutes in order to allow time for members'
questions.
I now recognize you, Undersecretary Kessler, for your
opening statement.
STATEMENT OF HON. JEFFREY KESSLER, UNDER SECRETARY OF COMMERCE
FOR INDUSTRY AND SECURITY, U.S. DEPARTMENT OF COMMERCE
Mr. Kessler. Thank you, Mr. Chairman. Chairman Huizenga,
Ranking Member Kamlager-Dove, members of the South and Central
Asia Subcommittee, thank you for having me here today to
testify on the 2026 President's budget request for the
Department of Commerce's Bureau of Industry and Security, BIS.
BIS' mission is to protect and promote the crown jewels of
the American economy, sensitive and dual use technologies, and
critical supply chains. We're just a few months into the Trump
administration. And under the strong leadership of President
Trump and Secretary Lutnik, BIS is firing on all cylinders to
deliver strong results to the American people.
First, in the area of export controls, we're strengthening
and streamlining the rules and working on closing loopholes.
We've already added more than 80 companies or entities to the
entity list which is an export control's list of restricted
parties, including companies involved in China's quantum
computing and hypersonic weapons programs as well as Iran's
procurement of drones. We're also reviewing a wide range of
existing licenses, involving exports of strategic significance
to ensure that sensitive technologies do not flow to our
adversaries.
In the area of export enforcement, the Bureau of Industry
and Security working with our partners in the Department of
Justice has secured 22 criminal convictions, 32 arrests, 38
indictments, 231 detentions valued at more than $185 million
and 79 seizures valued at more than $40 million. And we have
many additional impressive enforcement operations and legal
actions against wrongdoers underway now.
BIS is also conducting Section 232 investigations to
revitalize and strengthen critical sectors of the economy.
Since the beginning of this administration, we have initiated
seven new 232 investigations, more than any administration
ever, including on copper, lumber, pharmaceuticals,
semiconductors, critical minerals, medium and heavy trucks, and
commercial aircraft and jet engines. And BIS administers
section 232 tariffs based on the results of previous
investigations, namely steel, aluminum and auto parts--autos
and auto parts. At the President's direction, we have
significantly improved and strengthened these tariffs, for
example, by eliminating a plethora of exclusions and exemptions
from the steel and aluminum tariffs and by setting up an all
new inclusion process for those tariffs.
BIS also administers a program established in the first
Trump administration carried out by the Office of Information
and Communications Technology Services, or OICTS. OICTS
protects Americans from foreign adversary technologies that
undermine national security. In March, the first major rule
under the ICTS program came into effect which will require a
phaseout of foreign adversary controlled software and hardware
from passenger vehicles in the United States. And additional
investigations and rulemakings are underway now.
The 2026 President's budget builds on these tremendous
accomplishments by requesting $303 million for BIS. This will
represent the single largest investment in BIS history and one
that will significantly bolster our ability to protect national
security. An increase of this scale would enable BIS to
significantly augment its enforcement capabilities.
We would be able to hire almost 200 export enforcement
special agents stationed across the United States who are
responsible for apprehending and charging criminals who seek to
profit by unlawfully transmitting American technology to our
adversaries. And this increase would also enable BIS to more
than double the number of what we call export control officers,
ECOs who are enforcement officials stationed overseas from 12
at present to 30. These ECOs are critical for monitoring
foreign entity compliance with U.S. export controls.
A portion of the requested budget increase would also fund
specialized engineers and technical experts who support BIS'
enforcement efforts, for example, by determining whether a
license was required for a particular export that has already
taken place. These enforcement efforts are not only critical to
protect national security, but they can also pay for themselves
and penalty revenue, the results from the enforcement actions.
BIS has an outsized role to play in promoting national security
and supporting the President's America First Trade Policy.
The Bureau's increased responsibilities in administering
and enforcing export controls, including and maintaining
America's technological leadership in critical and emerging
technologies like AI and investigating imports that threaten
our national security. These tasks require commensurate
resources. It's time for BIS to have the resources that it
needs to do its job to keep America safe. The President's
budget recognizes and enables this. Thank you, and I look
forward to your questions.
[The prepared statement of Mr. Kessler follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Huizenga. Thank you, Mr. Kessler. I appreciate that. I
will now recognize myself for 5 minutes for some questions.
Not sure, you may or may not actually be aware of this. But
at 10:08, Commerce Department released a statement announcing
Micron Technology is doing a $200 billion investment in memory
chips here in the United States. And I know the ranking member
has expressed some concern about where government funding has
gone on technology and technology development and R&D.
I would be remiss if I didn't point out that the One Big
Beautiful Bill reinstates R&D and allows the private sector to
go do that. And in my mind, it has to be a partnership. We
cannot just expect that the Federal Government is going to do
much of this.
I was proud to introduce the bipartisan Chip Security Act.
Representative Foster and I, we served together on Financial
Services as well, we worked on that which would require
location tracking on AI chip exports. Under Secretary Kessler,
you are requesting 133 percent increase to BIS' enforcement
budget.
You laid out that would allow you to double the number of
agents, I believe, that are looking at the enforcement. Are you
seeing a large number of diversions of U.S. AI chips? And could
location tracking potentially assist BIS in preventing
diversions of these chips to China?
Mr. Kessler. Thank you, Mr. Chairman. We do see significant
efforts by wrongdoers to divert AI chips as well as other
products that are export controlled. But we see those more
commonly that you might expect, and we have enforcement
operations that are active to address those types of
activities. I'm concerned that we're not catching all of it,
that there's a lot that goes undetected. And this budget is
intended to enable us to capture more of it and prevent more
wrongdoing.
Mr. Huizenga. There are some that deny that this smuggling
is happening at all.
Mr. Kessler. It's happening. It's a fact. It's happening.
Mr. Huizenga. Unequivocally, right. Yes, Okay. That seems a
reality that some are, for whatever reason, are choosing to try
to ignore. Well, yesterday, President Trump announced a
successful deal with China to restore rare earth minerals
access to the United States, and we haven't seen necessarily
all the details of that.
We know there's been plenty of hardball negotiations that
have been going back and forth. Michigan, my home State,
probably serves as the home of American car manufacturing. I
know firsthand how dangerous China's weaponization of rare
earth supply chain is to our economy. I was hearing that
repeatedly from suppliers as well as the OEMs, the original
equipment manufacturers.
President Trump stated that in exchange for China restoring
access, the U.S. would, quote, ``provide to China what was
agreed to, including Chinese students using our colleges,''
close quote. Can you share any of the details of the recent
agreement? And were any U.S. export controls on China included
as part of that deal?
Mr. Kessler. The details are still to come, and discussions
are going on now between the governments. I'm not going to
comment on the content of those discussions. But look, the
discussions were largely about the Geneva agreement, making
sure that China fulfilled its commitments from the Geneva
agreement, including the removal of non-tariff measures that it
had imposed afterwards, such as those for rare earth.
It's such an important issue, as you know well and your
constituents know well. Rare earths are critical input for
automotive supply chains, defense supply chains, other supply
chains. And the administration has been committed. We've been
working very hard to make sure that those inputs continue to
flow, that the industries and jobs that depend on them remain
stable. That's what we're focused on.
Mr. Huizenga. OK. Well, U.S. export controls on China's AI
capabilities are only effective if China is unable to produce
an alternative technology stack at scale. Because of that,
Chinese AI chips production capability is an important metric
of success. Last week, Secretary Lutnik disclosed that China's
AI chip production capacity is, quote, ``closer to 200,000 AI
chips.''
Is that the formal position of the U.S. government? And is
that their assessment? And what does that mean? And does that
mean 200,000 Huawei, 910Bs, 910Cs, or all Chinese AI chips? Can
you shed some light on that?
Mr. Kessler. So our assessment is that Huawei's Ascend chip
production capacity for 2025 will be at or below 200,000. And
we project that most or all of that will be delivered to
companies within China. China is investing.
I think it's important to say we shouldn't take too much
comfort from that fact. China is investing huge amounts to
increase its AI chip production and as well as the capabilities
of the chips that it produces. So it's critical for us not to
have a false sense of security to understand that China is
catching up quickly. But that is our projection for this year.
Mr. Huizenga. OK. My time has expired. The ranking member
is recognized for 5 minutes.
Ms. Kamlager-Dove. Thank you, Mr. Chair. And actually,
thank you for sharing that announcement. You referenced the
Commerce announcement of the $200 billion deal and the majority
of that money is because of the CHIPS Act. So let's give some
credit to Joe Biden. That is a big deal.
Mr. Kessler, as you know, enforcing export controls on
Russia for its invasion of Ukraine requires constantly updating
the entity list to account for front companies and subsidiaries
that pop up to circumvent the controls. And so in your
testimony, you stated that you all have added 80 countries to
the entity list. But in the nearly 6 months since President
Trump took office, BIS has not added a single company to the
entity list in relation to Russia's war on Ukraine, effectively
allowing our controls to deteriorate.
I mean, is that true that there have been no companies
added to the entity list in relationship to Russia's war on
Ukraine?
Mr. Kessler. We have continued to enforce all of the export
controls that we have in place, including those with respect to
Russia. There have been enforcement actions since I've been in
office that addressed Russian parties. So----
Ms. Kamlager-Dove. But enforcing----
Mr. Kessler [continuing]. I don't think it's correct----
Ms. Kamlager-Dove. Enforcing is not updating. So I'm asking
about updating the entity list.
Mr. Kessler. If we identify Russian parties that we believe
should be added to the entity list, we would do that.
Ms. Kamlager-Dove. So the reason why I'm asking is because
putting restrictions on American companies without getting
national security outcomes you desire doesn't seem to me to be
a strong policy. And the outcomes that I would think we desire
would be to block evasion of controls and stop the shipment of
dual use items to Russia. So I'm just asking--I would like to
ask you if you would commit to restarting a regular cadence of
entity list actions against entities supporting the Russian war
machine.
Mr. Kessler. Well, there hasn't been any pause. So when we
identify entities that we believe should be added to the entity
list and there's a formal process for gathering intelligence
and for coordinating with interagency partners to determine
which entities those are. If we determine a party should be
added and it's Russian, then we would do that.
Ms. Kamlager-Dove. Well, Secretary Rubio actually came
before the full committee to talk about many things. And he did
testify to the fact before our committee that in fact Russia
was the aggressor in the war with Ukraine. So do you disagree
or agree with Secretary Rubio that Russia started the current
war in Ukraine and is the aggressor in this conflict?
Mr. Kessler. I actually agree with Secretary Rubio's
assessment of the war in Ukraine and defer to the State
Department and Secretary Rubio on foreign policy in general.
Ms. Kamlager-Dove. Great. Well, I'm so glad to hear you say
that because I would hope that we would all be on the same page
about making sure that we are blocking Russia's ability to
smuggle these kinds of chips and equities and assets that are
so important to us and our allies. And we also know that Russia
is working with China. So when we're talking about the PRC, we
should be adding Russia to that list as well.
So I'd like to now move on to the Gulf AI chip deal in the
few minutes that I have left. So Secretary Kessler, as part of
the AI deals that were announced last month, did the
governments of UAE and Saudi Arabia sign any security
agreements to protect U.S. technology from being diverted or
remotely accessed by Chinese entities?
Mr. Kessler. Well, what I can say is that the governments
that we made deals with are very much aware of the security
requirements that we have when we export AI chips. Those have
been a topic of discussion, and we've made no secret of the
fact that for any chips to be exported, any of the chips that
they're interested in getting, BIS approval would be needed.
And what we look at when we authorize or not, exports like
that, what we look at is whether the chips are going to be
secure when they're deployed overseas.
Ms. Kamlager-Dove. So I would think that it would be just a
simple answer, yes, we are going to do everything we can to
protect U.S. technology and keep it safe.
Mr. Kessler. Well, that's correct.
Ms. Kamlager-Dove. Thank you. Thank you. I yield back.
Mr. Huizenga. The gentlelady yields back. With that, the
representative from New Jersey, Mr. Kean is recognized for 5
minutes.
Mr. Kean. Thank you, Mr. Chairman. And thank you, Under
Secretary Kessler, for being here today. As the world becomes
increasingly digital, the potential of technological warfare
had become an increasing concern. It is important that our
export control regime supports American businesses while
preserving American security in both physical and in digital
realms.
Under Secretary Kessler, BIS recently imposed license
requirements on the export of certain AI inference chips, such
as Nvidia H20 to PRC. How is BIS viewing the overall export of
AI chips to China? And how are you considering factors like the
evolution of PRC domestic capabilities and more advanced U.S.
chips entering the market?
Mr. Kessler. Thank you for the question. We have robust--
BIS maintains robust controls on the flow of AI technology to
China. They are extensive. They apply to semiconductors and to
semiconductor manufacturing equipment and to software related
to manufacturing semiconductors and all parts of the
semiconductor supply chain.
So we have a robust set of rules that controls this type of
technology, prevents it from flowing to China, to certain other
countries as well. From time to time, we need to update these
rules because--pardon me--because the technology evolves. And
we need to make sure that our rules keep pace with the
technology. So when we take an action like the one that you
described, it's to make sure that the most sensitive
technologies don't fall into the hands of our adversaries.
Mr. Kean. And what can we do as Congress to work with BIS
to strengthen our export control regime?
Mr. Kessler. I appreciate the question. I think the first
thing would be to give BIS the resources that the President's
budget requests. I think it's important for the world to
understand that Congress stands with BIS in ensuring that our
rules are strongly enforced, that the remain robust. And I
think it's important for our foreign partners and allies to
know that Congress expects them to align with U.S. export
controls.
The one issue that we encounter frequently in export
controls and that is recognized in ECRA in the statute that
establishes export controls, one of the issues is that in order
to be effective, export controls need to be coordinated with
other countries. We can't have a situation where other
countries undermine U.S. export controls by backfilling. And
again, I think it's important for American allies and partners
around the world to understand that Congress recognizes this
problem and expects them to stand with United States when we
impose our export controls.
Mr. Kean. And Under Secretary Kessler, undersea cable
infrastructure carries over 95 percent of the world's internet
traffic, yet many of the components and support technologies
remain available to foreign adversaries. Earlier this year, I
introduced the Undersea Cable Control Act, which calls for a
strategy to prevent our adversaries from acquiring technologies
critical to global cable networks. What role can BIS play in
identifying and controlling exports with sensitive cable-
related technologies to ensure that our communications networks
are not compromised by hostile cyber actors?
Mr. Kessler. Well, I think that's an important area to look
at. And I'd be happy to work with you on that. I think we have
a number of tools at our disposal, including export controls
and potentially including the ICTS authority that I mentioned.
So I look forward to talking to you more about that.
Mr. Kean. Thank you. And the Foreign Direct Product Rule
was designed to close export control loopholes. The key allies
like Netherlands and Japan have not fully aligned their
controls, allowing adversaries to access semiconductor tools
and potential cyber and military applications. How is BIS
engaging with international partners to ensure that
multilateral export controls are harmonized and our adversaries
cannot exploit allied markets to undermine U.S. cybersecurity
and export enforcement?
Mr. Kessler. We and I personally have been engaging with
foreign governments to stress that point. So I want to assure
you that we're very focused on that issue. We take it very
seriously. It's critical for U.S. export controls to be
effective to have governments like the ones that you mentioned
on board with U.S. controls.
Mr. Kean. Thank you. I yield back.
Mr. Huizenga. The gentleman's time has expired. The
gentleman from California, Mr. Bera, is recognized for 5
minutes.
Mr. Bera. Thank you, Mr. Chairman. Under Secretary Kessler,
I'm going to follow on a line of questioning that the chairman
started. I think last week in response to Senator Coons'
question, Secretary Lutnik said that China is only capable of
producing about 200,000 of the advanced chips annually.
I think you just confirmed that. Maybe said it might be
even a little bit less than that. And that's a surprisingly
small number compared to that. Now you also touched on we
shouldn't rest on our lots and so forth.
I think you also indicated that right now those chips are
for domestic consumption in China and production. I think--
well, let me ask this question. How is China closing the gap
with us? And then what can we do working with BIS to slow that
gap closure down?
Mr. Kessler. Thanks. I appreciate the question. So yes, as
you said, we shouldn't take too much comfort in the fact that
China's production of these advanced chips is relatively small
because we know they have global ambitions. China wants to
dominate the global supply chain in semiconductors and has had
plans to achieve that goal for more than a decade.
It's consistently executed on those points. But I think
there are two parts. One is we need to do what the President
just did in the Middle East and ensure that American technology
can become the foundation for AI infrastructure around the
world because that closes--it closes out market space for
others that would supplant us otherwise.
I think that's an important component and deals like the
ones that the President just concluded in the Middle East bill
helps cement America's primacy in this area. I think the
controls are the other piece. We need to ensure that American
technology doesn't become an input, an element of the
technological advancement that companies like Huawei or others
that are controlled by our adversaries have. So with those two
pieces together, I think we can ensure that our lead over
rivals remains as big as possible.
Mr. Bera. Let me continue on that line of questioning. One
of the rationales for the Gulf deal was that if we don't do it,
Huawei or others would do this and help the Gulf states build
this infrastructure. Obviously, based on our conversation right
now, they're not capable of doing that at this particular
moment in time.
I think there are legitimate concerns I think on both sides
of the aisle here that we provide some of our most advanced
chips and technologies to the Gulf states. We do want to make
sure that they're very secured. Bill Foster has talked to me a
lot about the location tracking and inserting technologies that
make sure those chips are not ending up in Beijing or somewhere
else.
If we do go down this path of working with the Gulf states,
I do think it's going to be incredibly important that we do
everything in a bipartisan way here in Congress. But working
with this to protect those chips, we don't actually
inadvertently give Huawei or the Chinese that ability to
compete with us globally when they can't right now.
Mr. Kessler. Yes, Representative Bera, I agree with you,
and I agree with you on all of that. I think it's critical that
we make sure that the chips when they go overseas remain secure
and that's our mission. That's what we're going to do.
Mr. Bera. Second line of questioning, I'm glad that you're
increasing your workforce because I think these export
controls, these regimes, again, protect natural advantages in
this global competition. It's going to be incredibly important.
My understanding, though, is about one-third of your workforce
and personnel were lost due to layoffs, early retirements, or
resignations.
And you've got an incredible workload. You have seven
active Section 232 investigations and other things going on.
Are you able at this particular moment in time to meet these
critical responsibilities given what you've lost in terms of
infrastructure and manpower?
Mr. Kessler. Yes, I believe the number of people that we've
lost is smaller than that. But yes, I do think we have the
resources that we need to continue to function. I think we
could do a lot more with it.
There's no resources that we're requesting. As I said, I'm
concerned that although we're catching wrongdoers, our
enforcement operation is robust, I'm concerned that many
instances of wrongdoing go undetected. And that's what the
budget request is about.
Mr. Huizenga. The gentleman's time has expired. Congressman
Self, our subcommittee chair of Europe, is recognized now for 5
minutes.
Mr. Self. Thank you, Mr. Chairman. And thank you, Under
Secretary, for being here today. I want to highlight a growing
concern. We know that China cheats. People's Republic of China
is increasingly bypassing our export controls through complex
corporate structures.
Right now, BIS' hands are tied when it comes to preventing
our most sensitive technologies from falling into the hands of
our adversaries. And we're seeing PRC linked companies,
institutions, and military end users, established subsidiaries,
often shell companies, to evade our restrictions. That's why
I'm introducing the Stop Shells Act to close this subsidiary
loophole which means if a subsidiary is 50 percent owned or
more by an entity list or military end user list entity, they
would be--it would apply to them.
Corporate due diligence firms have identified thousands of
Chinese subsidiaries that are at least 50 percent owned by
entities already on the entity list. So Mr. Secretary, do you
agree that closing this loophole is crucial in preventing the
PRC from circumventing our export controls? And further, would
you agree that reinforced by Foreign Direct Product Rule would
meaningfully disrupt the CCP's acquisition of U.S.
technologies? And third, is 50 percent the right number?
Mr. Kessler. Well, thank you for the question. I would have
to look at the details, especially with respect to your
question about FDPR. I think in principle, I do agree that
there's a problem, the problem that you're describing that the
BIS restrictions list, the entity list, the military end user
lists only cover narrowly the company that's listed.
And it does create loopholes and make evasion and
circumvention easier. So I think that is something that's
important for us to address. And I'd be happy to work with you
on that.
Mr. Self. Very good. So BIS recently put out helpful
guidance clarifying preexisting U.S. policy that certain Huawei
chips were subject to U.S. export controls and require a
license from BIS for export. Is BIS planning on issuing similar
guidance for other Chinese products such as semiconductor
manufacturing equipment companies like NAURA?
Mr. Kessler. I don't think we have any plans like that at
the moment. But I would certainly consider it. I'd be happy to
talk to you and your office about it more.
Mr. Self. Very good. And I will submit that to you in
writing as a question.
Mr. Kessler. Terrific.
Mr. Self. And last, I'd like for you to address--it seems
to us that when we have lowered the threshold for a chip
design, the companies--U.S. companies to include go just below
the level. Would you address that for us, please?
Mr. Kessler. Well, yes, I think it's important for BIS to
set the technical parameters of its controls with precision.
And in a sense, I don't believe companies for trying to
continue shipping products to China that are not controlled. I
think BIS should just make sure that the parameters are defined
in a way that if companies do what we say is lawful, it doesn't
undermine American national security.
And so I think that's the main lesson for me. We need to
make sure that where we draw the line is where we intend to
draw the line and that the corporate community can live with
that. Because we need to not only prevent technology from
flowing to adversaries. But we also need to communicate
effectively to industry about what's permissible and what
isn't.
Mr. Self. If I can help you with a term, U.S. national
interest. With that, Mr. Chairman, I yield back.
Mr. Huizenga. The gentleman will yield--Mr. Self, the
gentleman will yield to me?
Mr. Self. I yielded back my time, Mr. Chair.
Mr. Huizenga. All right. I'd like to take the remaining
moment just to have one clarification. You had said in
discussion with the ranking member's questions about the Middle
East deal. And I'm not trying to imply that this is what you're
saying. I just want to make sure there's a clarification. There
has not been a suspension of any sort of export controls with
any of these agreements at this point?
Mr. Kessler. Correct.
Mr. Huizenga. OK. You were just reinforcing that all of the
export controls that are currently in place are part of any
agreement?
Mr. Kessler. Correct. No export controls have been
suspended at all.
Mr. Huizenga. OK, great. Thank you.
Mr. Kessler. I think I was trying to say the opposite, that
of course when any chips go outside the United States, they
must comply with export controls, whether it's to countries
that we've done deals with or not.
Mr. Huizenga. OK. All right. That time has expired now. So
with that, the ranking member of the full committee, Mr. Meeks,
is recognized for 5 minutes.
Mr. Meeks. Thank you. And I want to thank you, Chairman
Huizenga and Ranking Member Kamlager-Dove, for organizing this
meeting. And it's good to see you again, Under Secretary
Kessler.
I appreciate your being here to discuss the
administration's budget request. But the problem I have because
I just find it difficult to have a credible hearing about BIS
and its budget when the committee hasn't seen any detailed
plans about the President's budget request for the agency. So
we received a congressional budget justification from State but
not from Commerce. So my question is, when will the Commerce
Department's congressional budget justification be provided to
Congress?
Mr. Kessler. Representative Meeks, it's good to see you
again as well. I enjoyed meeting with you a few weeks ago and
look forward remaining in close touch.
Mr. Meeks. Likewise.
Mr. Kessler. And all the budget documents, my understanding
is the Commerce Department has provided them. But if there's
something that still needs to be provided, I'll just take that
back and be happy to followup with you.
Mr. Meeks. Yes, surely, we have not seen the budget
justification. So I don't know. It's hard to have this
conversation when we have not seen that. So I would hope that
you could followup. And we'll make sure--if you want, we'll
send you another letter just requesting exactly what we need.
OK.
Second, in the last few weeks, BIS has suspended licenses
for several companies, imposed new restrictions on chips and
electronic design automation, EDA tools, and rescinded the
Biden administration's AI diffusion rule which established a
global regime for the export of our most advanced AI chips and
technologies. So my question is, can you tell me about the
decisionmaking process surrounding these actions and your role
in making them?
Mr. Kessler. Yes, the diffusion rule is very problematic.
The diffusion rule was something that the Biden administration
did in its final hours before leaving office. It was hastily
constructed.
It established a regime--a worldwide regime for controlling
chips that was bureaucratic, heavy handed. It drew arbitrary
distinctions between different countries. Some are favored and
some are less favored.
It offended many of our partners and allies. It was not
ready for prime time. And I think frankly even members of the
former administration might admit that to you in private. So
that's why we rescinded that rule.
It is not suitable for actually being put into practice.
And we did that before the rule became effective because we
didn't want to disrupt global markets in these critical
technologies. As for the other steps that you mentioned, BIS is
reviewing products of strategic significance across the board.
We want to make sure that we don't unintentionally allow
products and software and technologies that are important that
have a national security significance to flow to our
adversaries.
Mr. Meeks. So what I'm trying to find out is, has ever
single license that you have suspended gone through full
interagency and White House approval?
Mr. Kessler. There is an interagency process for handling
actions related to licenses. And we adhere to that process.
Mr. Meeks. So they----
Mr. Kessler. I think that's set up by executive order.
Mr. Meeks. So those licenses that were suspended has gone
through full--I know it's set up. My question is, did those
companies that were suspended did, in fact--assuming that you
were involved, they went through the full interagency and White
House approval process as set up?
Mr. Kessler. In any case where that interagency process has
to be followed, we have done it. So for example, to issue a new
license, to make a decision about an emergency authorization
request, there are certain types of actions with respect to
license where BIS is required to adhere to this interagency
process. And we consult with our partners at the Departments of
State and Energy and Defense. We follow that process.
Mr. Meeks. Let me in the few seconds I have left. Are you
planning any additional actions on the U.S. semiconductor
industries as it relates to China?
Mr. Kessler. I'm sure that we will remain active in that
space. I mean, this is a--it's a constantly evolving landscape.
And we need to make sure that our controls remain effective.
So----
Mr. Meeks. Are you planning anything immediately?
Mr. Kessler. No, I'm not planning anything immediately.
Mr. Meeks. So there's nothing planned additionally right
now as it applies to China, not immediately?
Mr. Kessler. Correct.
Mr. Meeks. Thank you. I yield back.
Mr. Huizenga. The gentleman's time has expired. With that,
the representative from Indiana, Mr. Shreve, is recognized for
5 minutes.
Mr. Shreve. Thank you, Mr. Chairman. BIS' enforcement
capacity remains strictly structurally constrained by limited
personnel. The Bureau maintains only a dozen overseas export
control officers.
They're responsible for conducting in-person end use checks
on thousands of export transactions annually. There have been
delays in addressing emerging technologies, certainly including
the fast moving areas of AI, quantum computing, synthetic
biology. And as these global threats evolve, your Bureau must
be able to compete in the private marketplace and other
government agencies for the talent needed to keep up with these
threats.
In coming weeks, I plan to introduce the BIS Strength Act.
It's legislation that'll prevent adversarial nations, certainly
including China from acquiring a product that could boost their
economic competitiveness in areas of concern, giving your
Bureau the hiring authority to bring leading technologists in
for 1-year terms at market competitive rates to craft smarter,
faster policy. Mr. Kessler, I'm not trying to lead the witness
here. But do you believe that this flexible hiring authority
could help BIS to keep pace with innovation and anticipate, not
just react to the emerging national security threats from these
emerging technologies?
Mr. Kessler. It sounds very useful, I have to say. And some
of the most talented people that I've worked with at BIS,
particularly technical experts, have a strong industry
background. Obviously, we need to understand--as an
institution, we need to have a deep understanding of what
industry is doing, what technologies are important. So your
proposal sounds very constructive and I appreciate it.
Mr. Shreve. Very good. Thank you. Mr. Chairman, I yield
back.
Mr. Huizenga. Thank you. The chair now recognizes
Congresswoman Johnson from Texas.
Ms. Johnson. Thank you, Mr. Chairman. Under Secretary
Kessler, I appreciate that you're taking time to be with us
today so that we can hear from you directly. You're only the
second Trump administration official to testify in front of
this committee and actually the first to testify to the
subcommittee level. So I'm pleased to see you here.
As we see our adversaries take steps to work together with
Russia, China, and Iran financing each other, the Bureau of
Industry and Security is one of our most important national
security tools to ensure that we maintain our technological
leadership and enforce export controls. But it is important if
we're to cut you a $311 million check all while the Trump
administration slashes all other agencies critical to our
economic leadership, then we receive the final budget
justification that you are obligated to provide Congress. And I
want to echo Ranking Member Meeks' concerns that we have not
received that justification which is unusual for you to come
here and testify prior to us receiving the budget descriptions
so that we can appropriately inquire about. And I would ask
that you please submit that at your earliest convenience.
Instead, you are asking for a 50 percent increase without
telling Congress about your AI enforcement strategy or plans.
So what justifies this massive adjustment of increased funding
for BIS? And what specific metrics for improvement are you
committing to achieve with this additional funding?
Mr. Kessler. Well, I think I am here to explain the plan
for these additional resources. But we have a small--effective
but small enforcement apparatus. We have around 200 people who
are responsible for enforcement altogether, and that includes
many front line officers and people who are responsible for
actually apprehending wrongdoers.
It includes the 12 export control officers that I mentioned
before, the officials who are stationed outside the United
States to make sure that foreign companies and countries are
doing what they're supposed to do with our technology. These
numbers are vanishingly small for the types of products that
we're talking about. We're an agency that handles something on
the order of 10,000, 20,000 licenses per month. We need more
than just one officer per country in the world to enforce these
rules effectively. And that's what this budget increase is
about.
Ms. Johnson. Mr. Chairman, at this time, I'm going to yield
the remainder of my time to Ranking Member Meeks.
Mr. Meeks. Thank you. I wanted to ask you one more
question. This week, your colleague from the National Economic
Council, Director Kevin Hassett, told the media that scaling
back U.S. export controls on China is on the table and the
trade negotiations with China in London.
And I'm deeply concerned about this administration mixing
export controls which require a national security justification
with trade negotiations. And so using export controls as a
leverage and trade negotiation I believe undermines the
credibility of America's export control regime. So can you
elaborate and tell us which controls are on the table in your
negotiations with the Chinese and why? And what controls are
not on the table and why?
Mr. Kessler. I'm not going to comment on the content of
discussions between--diplomatic discussions between the United
States and China which are continuing. What I will say is that
export controls have been strong. And I'm confident that they
will remain strong in the future, including with respect to the
AI technologies that we're talking about today and many other
technologies of concern.
Mr. Meeks. Were you at the--were you in the negotiations
for the trade talks in London?
Mr. Kessler. I was in London. I didn't participate in all
of the talks.
Mr. Meeks. But you participated in some of the talks?
Mr. Kessler. Limited, in a limited set of them.
Mr. Meeks. Do you care to say which talks you participated
in?
Mr. Kessler. I'm not going to comment more on the contents
of the discussions.
Mr. Meeks. So as Under Secretary, have you approved any
export controls with the aim of bolstering the administration's
leverage in ongoing trade negotiations?
Mr. Kessler. I wouldn't say that. When we impose controls,
it's based on an assessment of what would promote national
security and foreign policy interests of the United States. And
that's what the statute requires. So that's the basis on which
we apply.
[Simultaneous speaking.]
Mr. Meeks. But you understand my concern. You were there,
part of it. And to me, there's two separate----
[Simultaneous speaking.]
Mr. Kessler. I mean, look, part of the discussion is--part
of the concern is China's measures, including those related to
rare earths. And those were styled as export controls.
Mr. Meeks. I yield back to the gentlelady.
Ms. Johnson. Oh, I think my--yes, I think we're----
Mr. Huizenga. The Congresswoman yields?
Ms. Johnson. Yes, sir. I yield back.
Mr. Huizenga. Thank you. The chair now recognizes
Representative Moylan for 5 minutes.
Mr. Moylan. Thank you, Mr. Chairman. And as competition
with China over cutting-edge technology dramatically
intensifies, we can't overState the importance of effective
export controls. And the role of the Bureau of Industry and
Security, BIS, in our national strategic--strategy is even more
critical than ever. Sir, you really could use our help in
Congress as you're stating and I support that.
Mr. Kessler. Thank you, sir.
Mr. Moylan. You're welcome. Advanced semiconductors,
quantum technology, artificial intelligence, and autonomous
drones can be easily repurposed for military use by our
adversaries. The range of products that require careful
monitoring is highly diverse. And the supply chain for advanced
technology such as semiconductors is highly complex, involving
numerous international stakeholders.
This means it's nearly impossible for the U.S. to
unilaterally control the entire process. And my multinational
cooperation for effective export controls is critical. The
cooperation among the U.S., Japan, an Netherlands on advanced
semiconductors manufacturing equipment technology can serve as
a good example.
Now when we think about effective export controls, we need
to focus not only on which items should be regulated but also
on how these regulations are effectively implemented and
monitored to achieve our intended goals. Several significant
loopholes have been reported, such as acquisitions by obscured
companies under the control of regulated Chinese entities and
evasive imports through third countries. These examples
illustrate the difficulty of ensuring the workable enforcement
of export controls.
Nonetheless, we remain resolved in our commitment to
provide you with effective policy tools and work together to
secure national interests in the face of this critical
competition. Sir, you have a heck of a job. So Under Secretary,
which area or items do we need to strengthen our international
cooperation to deter our adversaries technology advancements?
And are you thinking of utilizing the Foreign Direct Product
Rule to prevent foreign backfilling of U.S. companies?
Mr. Kessler. Thank you, Representative Moylan. I appreciate
the question. I think it needs to start with some of the areas
that you mentioned, particularly controls on semiconductors and
semiconductor-related technology, semiconductor manufacturing,
equipment, software that relates to semiconductor
manufacturing, and other AI-related technologies.
We need to make sure that for all of these critical
technologies, our allies are fully aligned. And I agree with
you that there has been some progress, particularly with
respect to the Netherlands and Japan. But it's incomplete. The
task is incomplete and more needs to be done. I would consider
using the Foreign Direct Product Rule. I think it's an
important tool in our toolkit to make sure that there isn't
backfilling as you said.
I think the best approach when it's feasible is for foreign
countries willingly--especially our allies and partners who
share--after all, they share our security interests, and these
controls are all about promoting national security. So the best
outcome is when they willingly impose controls to achieve
alignment with ours. But yes, where that's not possible, I
think that we should consider the Foreign Direct Product Rule.
Mr. Moylan. Thank you. And sir, what kind of authorities
and new funding are necessary to implement more effective
export controls?
Mr. Kessler. Well, I think it's the funding that we're
requesting in this budget, a significant increase in
enforcement capacity. As I mentioned a moment ago, we have
approximately one enforcement official per country in the
world. And that's totally inadequate to the task that we're
charged with. These are technologies that are critical to
national security, that are incredibly valuable. And I think it
makes sense for the United States to invest in protecting them.
Mr. Moylan. Thank you for your efforts. I do hope and I
support you with your goals that you're requesting. Thank you
for your time and your expertise.
Mr. Kessler. Thank you, sir.
Mr. Moylan. Thank you, Mr. Chairman. I yield back.
Mr. Huizenga. The gentleman yields. We're now going to have
a second round of questions, and the first person who'll be
asking those questions, Congresswoman Johnson. You're
recognized for 5 minutes.
Ms. Johnson. Thank you so much, Mr. Chairman. I'm just
going to pick up where I left off a little bit. So one of the--
we've kind of been touching on this. But my question is very
specific. One of the Bureau's core missions is international
cooperation on issues from controlling the spread of dangerous
goods and technologies to protecting critical infrastructure.
As my colleagues have mentioned, especially with export
controls, effective enforcement is often determined by
international cooperation and coordinated efforts to harmonize
U.S. laws with our trading partners. So I know you've testified
that you're having increased personnel. But are there any other
aspects of how you intend to spend the 120 million budget
increase that your agency is requesting other than on personnel
specifically?
Mr. Kessler. Well, I think it is mostly personnel. A
portion of the budget may go to--I'd have to check. But I think
a portion of the budget may go to equipment that enforcement
officers need bulletproof vests and cars--service cars that
they use when they're doing enforcement operations, firearms,
things like that. But I think most of it will be for personnel
and things that the enforcement personnel need.
And I guess I just want to register agreement with the
first part of your question also about the importance of
international cooperation. As I mentioned a moment ago to
Representative Moylan, it really is important to--well,
preferably to get countries--foreign countries willingly to
align with our export controls, and when that's not possible to
consider other options.
Ms. Johnson. I want to completely change the topic for a
moment and turn to an often overlooked issue that I'm very
passionate about which is just the intellectual brain drain
that's happening in our country right now. And I think it's a
matter of our national security. I'm concerned that the U.S. is
producing just the same number of electrical engineering
graduates here in 2025 as we did in 2021, almost 25 years ago.
This means that even if the administration is successful in
reshoring ship manufacturing and regaining semiconductor
leadership, there may not be sufficient workforce in place to
sustain these efforts. As an agency within the Department of
Commerce, the U.S. Government agency charged with creating
conditions for economic growth, promoting job creation, and
attracting foreign direct investment, what is BIS doing to
support growth of the engineering talent pipeline here in the
United States so that we can remain to have a scientific
technological advantage?
Mr. Kessler. Well, BIS' mission is to protect critical
technologies and to protect critical supply chains as a
department and as an administration. Ensuring that we have a
sufficient flow of talent into our cutting-edge technologies
and cutting-edge companies is absolutely a priority. And we
have a range of initiatives across the government to ensure,
for example, American dominance, continued dominance in AI and
other scientific fields.
And also to ensure a robust workforce at the technical
level, trade schools, vocational training. So I agree with you
about the importance of that. And it's something that we are
focused on as an administration.
Ms. Johnson. I have a lot of concerns about the attack on
higher ed in this country. The war that the administration
seems to be having with higher ed and also on our immigration
talent. We have scientists who's had their funding cutoff for
their research.
And then China has come in and offered them all the funding
in the world to continue to lure them away since the United
States is with the cuts across other disciplines in this
government. It's harming our research. It's harming our
development. Have you expressed concerns within the
administration that some of these other efforts are
counterproductive to the work that you're trying to achieve?
Mr. Kessler. No, not at all. And I don't see anything
counterproductive.
Ms. Johnson. Well, I completely disagree with that because
I do believe it's counterproductive when the United States has
invested significant sums of research--of resources to educate
foreign talent at our universities, to put them in labs, to put
in the research, to pay for their research to then unilaterally
cut it off after decades of progress and Nobel prize winning
efforts and the like only to be recruited by China and some of
the very countries that were in this discussion to keep a
competitive advantage. It certainly isn't helpful at all.
And I would suggest that you take a look at that because if
we don't have the talent in this country to continue to develop
and research and push our technologies forward, we will be
behind in this effort. None of these export controls are going
to even matter. And with that, I yield back. Thank you.
Mr. Huizenga. Thank you. The Congresswoman yields. I now
recognize myself for 5 minutes. There are serious concerns that
SMIC is violating U.S. export controls in its production of
advanced AI shifts for Huawei. Will you commit to utilizing the
increased enforcement budget to thoroughly investigating SMIC
and finally determine SMIC's compliance with U.S. export
controls?
Mr. Kessler. If we believe there's a violation happening,
we will absolutely investigate it. And if you have information
about any particular company that's violating export controls
now, we would absolutely investigate it, especially that one.
Mr. Huizenga. Thank you.
Mr. Kessler. Doesn't have to wait even for the additional
appropriations. And I think that goes for everybody. If there's
ever any violation that you think may be happening, we would
want to know that immediately.
Mr. Huizenga. OK. Our export controls require robust
enforcement. They also frequently require timely
administration. The Export Control Reform Act requires BIS
process licenses within 30 days of receiving an application.
What efforts is BIS taking to meet that goal?
Mr. Kessler. Well, we have a significant staff in the part
of BIS called export administration that's devoted to
processing license applications. And so that's how we try to
ensure that licenses are processed in a timely way.
Mr. Huizenga. Thank you. And how is BIS leveraging global
demand for U.S. technology to convince other countries to
assist in enforcing U.S. export controls and preventing illegal
divergence?
Mr. Kessler. Well, I mean, I think--I'm not sure I would
frame it exactly that way. My view is that it's positive when
U.S. technology is used as the basis, as the foundation for
technology infrastructure around the world because there are
alternatives. And we would rather have foreign countries
choosing U.S. technology rather than others. I see the role of
export controls as making sure that when that happens, it's
done in a secure way in a way that ensures that the technology
remains in the hands of the United States and our partners and
allies and not in the hands of our adversaries.
Mr. Huizenga. Thank you. That completes my final round of
questions. I now recognize the Congressman from Texas for his
second round of questions.
Mr. Self. Thank you, Mr. Chairman. So I want to explore our
export controls almost in general because your answer to my
first round of questions was interesting. So do you believe our
export controls on advanced semiconductors, those most
important related technologies are effectively curbing the
PRC's access to militarily significant chip capabilities?
Mr. Kessler. I do. I do. I think--and Chairman Huizenga
mentioned it in his opening remarks that there are PRC company
officials who have acknowledged that U.S. export controls are a
significant impediment to their own companies' development.
Mr. Self. And how aggressively could BIS leverage the
Foreign Direct Product Rule to restrict China's access to
advanced chips, particularly when foreign labs are producing
these same items using our technology?
Mr. Kessler. BIS has the ability to impose the Foreign
Direct Product Rule particularly with respect to semiconductor-
related technologies. So the FDPR doesn't apply equally across
technology areas. But in the area of semiconductors, it's
fairly strong. So we have a lot of flexibility to be
aggressive.
Mr. Self. So what legislative authority would strengthen
your hand?
Mr. Kessler. Well, I would--rather than commenting on that
here, let me just suggest that we have a separate conversation
about how that might be done. I think there are ways that
Congress could help strengthen BIS' authority in this area.
Mr. Self. I look forward to that conversation. And to what
extent are our efforts undermined by our allies' export
controls, particularly countries like Netherlands, Japan, South
Korea. And what is your candid assessment of the multilateral
export control success?
Mr. Kessler. Well, that's a complicated question. I think
there's a lot more to be done. As I said, I think there has
been progress in achieving greater alignment between the United
States and some of those countries. But it's incomplete, and
it's incomplete in important ways.
And the areas where we haven't yet achieved alignment,
unfortunately our enabling U.S. adversaries to advance and
cultivate their technology, we've sort of--the system, the
regime that United States and its partners and allies have set
up has encouraged adversaries to find alternative pathways to
acquire advanced technology and they're very good at that.
They're very good at finding ways around the rules and that's
happening. So I think it's a serious problem and one that, as I
mentioned before, I think, in response to another member's
question, I've been very focused on personally. So I think
there's a lot more to do there.
Mr. Self. And I just want to emphasize on the Science,
Space, and Technology Committee, we are starting to realize
just how critical AI and quantum computing marriage could be. I
mean, there are people that will tell you the first quantum
computing computer, the first will render our encryption
obsolete. So this is a vital question, advanced semiconductors.
This is absolutely critical to our national interest, our
national security, and our national defense.
Mr. Kessler. I fully agree.
Mr. Self. Yes. So this is more important than just the
Washington speak here. It's vital. With that, Mr. Chairman, I
yield back.
Mr. Huizenga. The gentleman from Texas yields.
Representative Moylan is recognized for 5 minutes.
Mr. Moylan. Thank you, Mr. Chairman. Last Congress, this
committee uncovered that BIS was routinely approving licenses
for some of the worst enablers of the CCP military
modernization, human rights abuse, and surveillance State. For
example, between November 2020 and April 2021, BIS approved 60
billion worth of licenses to Huawei and 40 billion worth of
licenses for SMIC. In fiscal year 1923, BIS only denied roughly
2 percent of all license applications it received. What
actions, sir, are you taking to reassure Congress that
additional funding will not simply used to facilitate BIS'
traditional rubber stamp policies for CCP?
Mr. Kessler. Let me be unequivocal. That has stopped and it
will not resume.
Mr. Moylan. Loud and clear. Thank you. And sir, what is
your assessment of China's recent technological advances such
as DeepSeek and Huawei launch of first laptops with self-
developed computer operating systems? And do you believe that
these developments indicate that we need more robust export
controls?
Mr. Kessler. I do. I think that it reveals several
different areas where our export control should be stronger,
both on the hardware side and on the software side. I think in
practice, the hardware is easier to control.
There was a lot of reporting after DeepSeek's January
advancements about its use of certain chips made with U.S.
technology for performing inference operations. And BIS has
addressed that. But I think it does show that we need to
constantly be vigilant about the potential use of U.S.
technology for our adversaries and their companies to achieve
advancements over us and to leapfrog us.
Mr. Moylan. Very good. I trust everything will go well
under your leadership. Thank you so much. Thank you, Mr.
Chairman. I yield back.
Mr. Huizenga. The gentleman yields. Under Secretary
Kessler, I'm interested in hearing more about how you think
that we should categorize AI when contemplating our export
control strategy. Is it a general purpose technology like
electricity or steam engines? Or is it more of a weapon? And is
it closer to an F-35 or a Boeing 737? And how should these
analogies shape our export control strategy?
Mr. Kessler. All of the analogies have a degree of
imprecision. Another one that I've heard used is civil nuclear
technology, one that has enormous potential benefits to
humanity but that can be dangerous if it falls into the wrong
hands. One that needs to be controlled carefully and monitored,
especially when deployed overseas, but one that we should also
promote and ensure United States continued leadership.
So I think that it is an area that needs some degree of
regulation--some degree of regulation, particularly with
respect to security. We need to make sure that when it's
deployed in the United States or overseas, it's deployed in a
secure way, one that is consistent with American interests. But
it's also important not to regulate this to death, and I think
that's the trap that frankly the Biden administration fell into
with the AI diffusion rule I was discussing a moment ago with
another member. That was an example of command and control
style regulation of this dynamic and rapidly evolving
technology area that would have just strangled it.
Mr. Huizenga. And what specific areas of concern did you
have regarding that structure?
Mr. Kessler. Regarding the diffusion rule?
Mr. Huizenga. Yes, yes.
Mr. Kessler. I mean, they are almost too many to list.
There was a series of elaborate caps on computing power and the
number of chips that companies could get depending per country
and depending on the classification of that country. And it was
just a very byzantine set of rules, difficult to understand,
much more difficult to comply with and divorced from commercial
reality.
Mr. Huizenga. Thank you for that clarification. Congress
has persistently raised issues with BIS' delays in identifying
emerging and foundational technologies at BIS as required under
ECRA. BIS has effectively established shadowy policy that will
only recognize emerging and foundational technologies after
working through the Wassenaar arrangement.
The statute clearly does not provide a Wassenaar exemption
to BIS' statutory responsibilities. The BIS delays directly
affect CFIUS jurisdiction. Will you commit to ensuring that BIS
follows the ECRA's mandate and ends it shadow Wassenaar
requirements prior to identifying emerging and foundational
technologies?
Mr. Kessler. Yes. If that shadow policy exists, that's not
one that I will honor. I agree with you that there's no
requirement to perform some kind of multilateral box checking
exercise before recognizing and controlling foundational
technologies.
Mr. Huizenga. Thank you. And then one more question for
you, sir, from me. BIS has not fully replaced its IT
infrastructure since 2008. The current IT systems present
legitimate national security risks as it hinders BIS' ability
to conduct investigations, produce analyses, and process
licenses in a timely manner. The One Big Beautiful Bill passed
by the House included resources for Commerce to improve its IT
infrastructure. Are the funs in the One Big Beautiful Bill
sufficient for BIS to address its IT deficiencies?
Mr. Kessler. I believe so.
Mr. Huizenga. And which areas would you focus on first to
utilize those resources?
Mr. Kessler. Well, we need to shore up the security first
and foremost of BIS' IT. Unfortunately, BIS--much of BIS' IT
system runs on a platform that's two decades old. So it needs
to be updated and overhauled and we need to focus especially on
cybersecurity.
Mr. Huizenga. I yield to Representative Self for further
questions.
Mr. Self. Thank you, Mr. Chairman. So I think it's fair to
say that not all of the people that can produce advanced chips
hold our position on China that it is certainly peer adversary.
Are you prepared to recommend to the Secretary, to the
Secretary of State, and to the President that if our export
controls or our allies or other nations that are producing
these chips continue to provide them to China, whether
surreptitiously or openly, that other means might be necessary
to curb the traffic of advanced chips into China? And I have no
idea what that might be, what might be decided. But would you
be willing to advise the use of sanctions of tariffs, whatever
means outside of export controls to stop the flow of advanced
chips into China.
Mr. Kessler. I would. My view as I believe yours is, is
that these are national security priorities. And United States
should consider all options when advancing those priorities,
including but not limited to those that are in the export
controls toolkit. But there are tools outside of that toolkit
we should consider as well.
Mr. Self. Thank you for that answer, Mr. Secretary, and I
yield back.
Mr. Huizenga. Thank you. Representative Self yields back.
The chair now recognizes Representative Kamlager-Dove, the
ranking member of this committee, for 5 minutes of questions.
Ms. Kamlager-Dove. Thank you, Mr. Chair. And I'm so glad
that we're still having these conversations. Great questions.
Under Secretary, I wanted to go back to some of the earlier
questions that I'd asked you about the Gulf AI chip deals.
And I know that you said earlier that it was your goal to
make sure that our chips remain secure. And I think it's our
intention to make sure that American countries and our allies
around the world also feel like they're being taken care of and
thought of by this administration. So we also do know that
there are chips and entities that are getting smuggled into
Russia or accessed remotely by China. So would you commit right
now that no advanced U.S. AI chips would be exported to the UAE
or Saudi Arabia until those governments sign a binding security
and monitoring agreement?
Mr. Kessler. What I would commit to is ensuring that for
any AI chip exports that require a license, we would ensure
that rigorous security requirements are in place. And we would
enforce those requirements.
Ms. Kamlager-Dove. And so what does rigorous security
requirements enforcement look like and mean to you?
Mr. Kessler. Among other things, it means that if the chips
are going to be deployed to a data center located overseas, we
would want to make sure that the operator of the data center
that the cloud service provider if it's being deployed as a
cloud, that those companies are trusted, that they have
demonstrated that they can fulfill rigorous security
requirements both with respect to who can access the computing
power and also physical security. It would also include the
personnel that work at those facilities. It would include the
companies deploying know your customer requirements to make
sure that there are not shell companies illicitly diverting----
Ms. Kamlager-Dove. Right.
Mr. Kessler [continuing]. the----
Ms. Kamlager-Dove. And I don't want to--I only have a few
minutes. So I do not want to cut you off. But I'm glad you said
that because we do know that, for example, Russia does
participate in starting up shell companies so that they can
evade the kinds of export controls that we have in place.
You also mentioned license applications. And so segments of
the U.S. industry have actually complained to Members of
Congress about significant delays when it comes to license
reviews. And these delays have been so prolonged and pronounced
that some companies are saying that there seems to be a
deliberate pause. So have you ordered a pause or delay in
review of license application since you assumed your role at
Commerce?
Mr. Kessler. I have been carefully reviewing the licensing
process. As another member mentioned, there has been a problem
in the past with BIS rubber stamping license applications,
including it appears those that are for products that go to
China and technologies that go to China and other adversaries.
I view that as a problem. And when I came into office, I
decided that one of the first things I would do is to take a
close look at the licensing process----
Ms. Kamlager-Dove. I'm so glad.
Mr. Kessler [continuing]. in order to----
Ms. Kamlager-Dove. I'm glad that you are saying that
because I do think that's important. I'm also concerned when we
hear from companies who say that it seems to be an excessive
length of time for this review process, even though it is
important that we carefully review. So has there been an
increase in the average time it takes BIS to get back to
companies with license application decisions?
Mr. Kessler. I don't know. But I would guess that there has
been because I'm no longer rubber stamping applications.
Ms. Kamlager-Dove. It would be helpful for us, I think, to
get that information. I know the chair talked about was
happening in Michigan. I've talked about the companies that are
in California.
I'm sure that there are other members. I know Arizona is
also a State that's deeply committed, interested in
semiconductors and issues around export controls. So could you
share that information with this committee about the length of
time that it is taking to review these license applications and
what your goal is in terms of decreasing the time it takes to
review while you are still making sure that you are giving it
careful consideration?
Mr. Kessler. We can provide information about our licensing
practices.
Ms. Kamlager-Dove. Thank you so much. And with that, I
yield back.
Mr. Huizenga. The ranking member yields. Seeing no further
questions, I want to thank Under Secretary Kessler for his
valuable testimony and for the members for their questions.
Members of the subcommittee may have some additional questions
for the witness and will ask you to respond to them in writing.
Pursuant to committee rules, all members may have up to 5 days
to submit statements, questions, and extraneous materials for
the record subject to the length limitations.
Without objection, the committee stands adjourned.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]
APPENDIX
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