[Senate Hearing 117-740]
[From the U.S. Government Publishing Office]
S. Hrg. 117-740
ADVANCING NATIONAL SECURITY AND FOREIGN
POLICY THROUGH EXPORT CONTROLS: OVER-
SIGHT OF THE BUREAU OF INDUSTRY
AND SECURITY
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE ACTIONS TAKEN BY THE BUREAU OF INDUSTRY AND SECURITY,
INCLUDING THOSE TAKEN TO RESPOND TO RUSSIA'S FURTHER INVASION OF
UKRAINE, ENGAGE WITH INTERNATIONAL ALLIES AND PARTNERS ON EXPORT
CONTROLS, ADDRESS HUMAN RIGHTS VIOLATIONS, AND ENFORCE EXPORT CONTROLS
__________
JULY 14, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-535 PDF WASHINGTON : 2023
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
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THURSDAY, JULY 14, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 24
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 25
WITNESS
Alan F. Estevez, Under Secretary for Industry and Security, U.S.
Department of Commerce......................................... 5
Prepared statement........................................... 26
Responses to written questions of:
Chairman Brown........................................... 32
Senator Warren........................................... 33
Senator Tillis........................................... 36
Additional Material Supplied for the Record
Letter submitted by The Bureau of Industry and Security.......... 38
(iii)
ADVANCING NATIONAL SECURITY AND FOREIGN POLICY THROUGH EXPORT CONTROLS:
OVERSIGHT OF THE BUREAU OF INDUSTRY AND SECURITY
----------
THURSDAY, JULY 14, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:01 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Sherrod Brown, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Committee on Banking, Housing, and
Urban Affairs will come to order. We welcome our witness, Alan
Estevez, who serves as Under Secretary for Industry and
Security at the Department of Commerce.
I thank Ranking Member Toomey and his staff for their help
in confirming Under Secretary Estevez and the two Assistant
Secretaries at the Bureau of Industry and Security: Thea
Kendler for Export Administration and Matt Axelrod for Export
Enforcement. That is important as other confirmations in the
Federal Reserve and others have been.
This is the first time since we passed the Export Control
Reform Act in 2018 that Congress has fully confirmed the full
BIS leadership.
Because of this Committee's work, for the first time since
2013, close to a decade, we have a full, confirmed Federal
Reserve Board. It is our job to do these things.
We have confirmed, as I just spoke with the Under Secretary
a moment ago, a fourth member of the Ex-Im Board. We have a
fully functioning Export-Import Bank, also important.
And for the first time in our history, these nominees are
beginning to look more like America in terms of gender and race
and background and diversity generally.
The world changed on February 24th when Russia invaded
Ukraine, continuing--I would underscore ``continuing''--its
barbaric war on the Ukrainian people and their sovereignty.
Vladimir Putin has been shocked by two things: the strength
of the Ukrainian resistance; and the skill of this President in
assembling and uniting a broad coalition, the likes of which we
have not seen in decades. Think about this: Germany, Finland,
Sweden, Switzerland.
We have isolated Russia. We have limited its ability to
access the tools and technologies it needs to continue its
grotesque, immoral, inhumane war against Ukraine.
BIS has been integral in our international response to
siphon off Russia's access to military material. I thank all of
you for that. It quickly rolled out a sweeping series of rules
designed to stall and degrade Russia's military and
technological capabilities.
BIS targeted Russia's defense, aerospace, and maritime
sectors. It applied controls to U.S. exports and to items
produced abroad that use U.S. software, U.S. technology, or
U.S. equipment.
Since February 24th, BIS has issued a dozen new rules,
ramped up enforcement activity, and continued to build what
Assistant Secretary Axelrod called ``the broadest expansion of
multilateral export controls among like-minded partners since
the creation of CoCom back in cold war days in 1949.''
The results have been impressive.
Exports to Russia by countries who have imposed sanctions
have fallen 60 percent.
At the same time BIS weakened Russia's military, it
committed to ensuring that those items that benefit the Russian
people, like medical supplies, are still available.
This ability to distinguish bad actors--whether they are
State or non-State actors--while still allowing innocent
civilians to benefit from U.S. exports is crucial, threading
that needle is crucial, as the agency builds on this
international coalition to address other national security and
foreign policy challenges.
To that end, Mr. Under Secretary, I am encouraged by your
statements calling for strengthening or supplementing our
existing multilateral regimes.
Enhancing our multilateral regimes requires patience--by
BIS and by Congress. We must work with allies to identify the
items and the technologies that present a risk to our
collective national security.
It is important work. I am pleased to hear that it is one
of Under Secretary Estevez's top priorities.
Back in 2018, when this Committee worked to enact the
Export Control Reform Act, we included policy statements,
guiding BIS in developing export control policy.
One of these guiding principles is that our national
security requires that the U.S. maintain our leadership in
science, technology, engineering, and manufacturing.
That value should guide our export control policy. It
should guide our work in Congress.
We do not want to be at the mercy of our competitors--or
our adversaries--for technology and other inputs vital to a
21st century economy. Dependency on countries like China poses
a huge economic risk and an unacceptable national security
risk.
It is why we need investments in research and development
and investments in our fellow citizens.
We have an innovation and competition bill in conference
that would do just that. I appreciate Mr. Estevez's
enthusiastic support for that bill.
Ranking Member Toomey and his staff--and I compliment
them--have worked in good faith with me and my staff to
negotiate this Committee's conference provisions. I thank them
for that important work.
We have reached bipartisan agreements on provisions with
the House Foreign Affairs Committee and the House Financial
Services Committee.
It is time for us to vote on and pass a final bill that
promotes U.S. science, U.S. technology, and U.S. manufacturing
so we maintain U.S. economic leadership.
This bill will create thousands, likely tens of thousands
of good-paying jobs in Ohio and many more around the country--
jobs in growing industries, jobs where you build careers. In my
State, those 10,000 jobs, at least 10,000 jobs, are at stake.
Business leaders and labor leaders are desperate for this
investment.
The head of the Ohio Chamber of Commerce and my friend,
former Congressman Steve Stivers, and the head of the Ohio
Business Roundtable, former Republican Congressman Pat Tiberi,
have been particularly vocal about this support.
We must act now.
For decades--we know this. For decades, at the behest of
corporate America, policymakers of both parties have passed bad
tax policy and bad trade policy that not only allowed but
really encouraged these companies to move jobs overseas and
supply chains and technology abroad--always in search of lower
wages, always in search of weaker worker protections, always in
support and encouraging low-level environmental enforcement.
And when the production moves abroad, innovation moves with it.
And then we act surprised.
We invented semiconductor chips. Ninety percent of them are
now made overseas, again, because of a corporate trade policy
that far too many Members of this Senate and House acquiesced
in when faced with intense corporate lobbying.
We have to fix that now. This is our chance.
Americans have waited long enough. We should pass this bill
this month.
If Congress is serious, if we are serious about the threats
that face us, regardless of the politics, it must be similarly
serious about supporting American innovation.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. And, Under
Secretary Estevez, welcome.
The Bureau of Industry and Security, or BIS, determines
which U.S. goods are too sensitive to be shipped abroad. In the
face of China's drive for dominance in key tech sectors
especially, BIS' mission today is as important as it has ever
been. By setting U.S. export control policy on items used for
both civilian and military purposes, BIS effectively has the
power to reshape the supply chains of entire industries. That
means BIS must craft export controls in a prudent, thoughtful,
and effective manner that advances U.S. national security
interests without unduly harming American economic interests.
The issue I would like to focus on today is a legislative
concept that has received a growing amount of attention in
recent months. It falls entirely in the jurisdiction of this
Committee, and it would unquestionably impact BIS' mission and
work flow if enacted. I am referring to a concept known as
``outbound CFIUS.''
The idea of outbound CFIUS is to establish a new agency
within the Executive branch and to give this agency vast,
potentially unchecked authority to regulate, intervene in, and
even block all kinds of potential activities, including
prohibiting Americans and U.S. firms from investing in, selling
to, or buying from companies in certain countries, most notably
China.
Outbound CFIUS could also provide the President with
extremely broad authority to determine which industries are
subject to regulation of this sort. And it is not just
semiconductor firms that we would be talking about. Any
industry determined to be in the national security interest of
the United States could be impacted.
President Biden's recent invocation of the Defense
Production Act for baby formula is just the latest reminder of
how the Executive branch can abuse the term ``national
security.''
President Trump also abused the notion of national
security, having the Commerce Department laughably assert in a
232 investigation that the import of foreign cars was somehow a
threat to our national security.
Now, it appears that Mr. Estevez perhaps agrees with this
because, during his confirmation hearing before this Committee,
he said to me, and I quote: ``232 is an important tool. Section
232 needs to be looked at in a hard national security lens,
Senator. It should not be used willy-nilly.''
I share Mr. Estevez's concern about national security
authorities being abused by any President willy-nilly. It is
not an overstatement to suggest that hundreds or thousands of
U.S. companies and tens if not hundreds of billions of dollars
in commerce could be impacted by outbound CFIUS.
The rise of China presents the United States with the
greatest security challenge we have faced since the end of the
cold war. I am very clear-eyed about the fact that the Chinese
Communist Party has embarked on a concerted, whole-of-
Government campaign to surpass the technological leadership of
the United States in the areas that will underpin geopolitical,
military, and economic power for decades to come, all to
further their ambition to displace America as the world's
dominant superpower.
But how we address this challenge matters. Doing outbound
CFIUS and getting it wrong could actually impede national
security, including the work of security agencies such as BIS
or CFIUS that are already doing important work with respect to
China. Getting it wrong could also severely harm the United
States. We cannot prevail in this contest with China by
emulating China, like the China competition bill before the
Senate envisions in many ways.
Instead, we need to out-innovate China and protect our
intellectual property from theft and illicit transfer. That
means ensuring that the United States remains the single
greatest global destination for capital formation, research and
development projects, and the smartest minds in the world to
come and work. Getting outbound CFIUS wrong puts all of this
into jeopardy by disincentivizing the flow of capital, ideas,
and people to come to the United States.
There are many important questions about outbound CFIUS
that remain to be answered. For example, what exactly is the
problem outbound CFIUS is attempting to solve? How do current
laws and authorities such as export controls address or fall
short of addressing these problems? How would outbound CFIUS
affect the United States as a destination for capital formation
and technological innovation?
Now, I am not the only one concerned about the reasoning
and implications of standing up an outbound CFIUS mechanism. I
have here, Mr. Chairman, a letter from three former officials
from the last Administration who directly oversaw CFIUS and
export controls. The letter raises concerns about the scope and
justification for outbound CFIUS and calls for any such
mechanism to be grounded in a clear, statutory law brought
about through regular order. Mr. Estevez's predecessors clearly
are concerned about the way in which outbound CFIUS is laying
out. I think he should be concerned, too.
In addition, 11 trade associations representing hundreds of
companies and thousands and thousands of workers sent a letter
to Congress expressing opposition to the inclusion of outbound
CFIUS in the China competition bills that are under
consideration. I ask that these two letters be entered into the
record.
Chairman Brown. Without objection, so ordered.
Senator Toomey. So given these concerns, I think Congress
really has to take the time to properly evaluate the outbound
CFIUS concept rather than rushing to enact legislation that is
not properly vetted.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
I appreciate the Ranking Member's comments about the
outbound investment provisions. I meant what I said in my
opening statement. I want to pass a final competition bill this
month. Time is up. We need to act. I will work with my
colleagues on this issue, but we should do so in another
vehicle. So, Pat, thank you.
It is my pleasure to welcome Under Secretary of Commerce
Alan Estevez. He was sworn in in early April. Thank you for
joining us. You are recognized for your testimony.
STATEMENT OF ALAN F. ESTEVEZ, UNDER SECRETARY FOR INDUSTRY AND
SECURITY, U.S. DEPARTMENT OF COMMERCE
Mr. Estevez. Thank you, Chairman Brown, thank you, Ranking
Member Toomey, and thank you, Members of this Committee, for
inviting me to testify before you today on the work of the
Commerce Department's Bureau of Industry and Security, or BIS.
As the Under Secretary of Commerce for Industry and
Security, I view my role as the Chief Technology Protection
Officer of the United States. Our primary goal is to prevent
malign actors from obtaining or diverting technologies that can
be used against the United States or its allies in order to
protect our national security and advance our foreign policy
objectives.
Export controls are a unique and powerful tool for
responding in the modern environment. This is particularly true
when we work together with our allies and partners.
Today I will briefly discuss BIS' role in administering and
enforcing export controls in response to Russia's further
invasion of Ukraine; the pacing threat of China; the
identification of emerging and foundational technologies
essential to national security; and building a durable,
multilateral technology security framework for export controls.
Since February 24th, we have imposed sweeping export
controls on Russia for its unjustified, unprovoked, and
premeditated invasion of Ukraine and on Belarus for its
substantial enabling of that invasion. I want to thank the
Members of this Committee for their support for additional
funding for BIS in the first Ukraine supplemental spending bill
that passed in March.
We are choking off exports of technologies and other items
that support Russia's defense, aerospace, and maritime sectors
and are degrading Russia's military capabilities and ability to
project power. For example, overall U.S. exports to Russia have
decreased approximately 88 percent by value since last year,
and other countries implementing similar controls have seen
export decreases around 60 percent.
Importantly, since our controls have fully taken effect,
worldwide shipments of semiconductors to Russia have dropped 74
percent by value compared with the same period in 2021. Also,
reports indicate Russia will have to ground half to two-thirds
of its commercial aircraft fleet by 2025 in order to
cannibalize them for parts due to the controls we have
implemented. This is one of the most aggressive and robust uses
of export controls against another country, and the effects
would not be possible without the coalition of 37 other
countries so far that have adopted substantially similar
controls on Russia and Belarus.
As we continue our robust response to Russia's invasion of
Ukraine, we remain focused on aggressively and appropriately
using our tools to contend with the long-term strategic
competition with China. My North Star at BIS is to ensure we
are doing everything within our power to prevent sensitive
technologies with military applications from getting into the
hands of China's military, intelligence, and security services.
BIS maintains comprehensive controls against China,
including for the most sensitive items under our jurisdiction,
as well as for predominantly commercial items when intended for
military end uses or end users in China.
As part of our controls, we have nearly 600 Chinese
entities on our entity list, 107 of those added during the
Biden administration. China remains a complex challenge in the
competition between democracies and autocracies. We are closely
reviewing our approach to China, seeking to maximize the
effectiveness of our controls.
Another part of our mission at BIS is to identify and
impose appropriate controls on emerging and foundational
technologies essential to national security. Since enactment of
this statutory requirement, BIS has established 38 new controls
on emerging technologies, including controls related to
semiconductors, biotechnology, and quantum computing. I
continue to prioritize this issue.
As part of this important mission, I have asked the
Department of Defense Under Secretaries for Acquisition and
Sustainment and for Research and Engineering to work with me to
establish a critical technologies review board. This board will
help BIS to understand the technologies DOD is investing in for
military use and help us impose appropriate controls for those
technologies.
For the United States to maintain effective export controls
and technology leadership, we need to coordinate with others.
Our work with 37 other countries to implement the Russia
controls helps provide a blueprint for further progress. We
need to work with our allies to develop a 21st century export
control framework for the digital age, which includes working
with like-minded suppliers of sensitive technologies as well as
addressing the use of commercial technologies to commit human
rights abuses.
Finally, enforcement is critical to ensuring effective
export controls, and we are working with partners across the
globe to enhance export control enforcement. I value the
collaboration and partnership with this Committee as we tackle
national security challenges together.
Thank you again for inviting me here today to testify, and
I look forward to your questions.
Chairman Brown. Thank you, Mr. Under Secretary.
The questioning will begin with the Senator from Nevada,
Senator Cortez Masto, for 5 minutes.
Senator Cortez Masto. Thank you, Mr. Chairman.
Chairman Brown. Of course.
Senator Cortez Masto. I appreciate the consideration.
Under Secretary, in May, the Bureau of Industry and
Security announced its decision, as we have been talking about,
to cease which technologies subject to new export control under
the Export Control Reform Act are either emerging or are
foundational and instead identify all such technologies
together as Section 1758 technologies. So can you elaborate on
how the Bureau expects this change to speed up efforts to
identify technologies significant to U.S. national security?
Mr. Estevez. Thank you for that question, Senator. We found
going through the process, while we were looking at emerging
and foundational technologies, an interagency debate over what
is the difference between emerging and foundational. For
example, is a 5 nanometer semiconductor emerging technology or
is it foundational, a next generation of an existing
technology? Is a Tesla a new emerging vehicle, or is it just a
car?
So instead of dancing around that, to get technology
protections out, we wanted to just identify them within the
statute, number 1758. That does not mean we will not go back
and identify them as emerging or foundational and put
appropriate controls. My guiding light is to put appropriate
controls on technologies that may threaten the United States if
used by the wrong people. But to get through the interagency
process, we are going to blur that distinction.
Senator Cortez Masto. So could this lead to a rise in
designations of such technologies and an increase in mandatory
filings with CFIUS? Would this add more bureaucracy and slow
this process down somehow, impeding our national security in
being able to identify these technologies?
Mr. Estevez. I do not believe so, Senator. I am a former
DOD rep to CFIUS for 6 years. CFIUS needs to look at
technologies for investment, including passive investment,
under the rules of FIRMA. They can do that using broad
categories of technologies--AI, quantum computing. To do an
export control, I need a more definitive identification of that
technology. What is the algorithm? Which CFIUS does not need.
CFIUS needs to look at a broader scope.
So, for me, this is an easier way to get the proper
controls around technologies that could be used against us
while still allowing the processes to work.
Senator Cortez Masto. Thank you. And we talked about this.
China is the greatest long-term threat to the United States and
democracies around the world with their economy and at so many
other levels, and it has a clear plan to use all forms of their
Government, their economy, their military, the industry, to
really gain that competitive advantage over the United States.
My question to you, Under Secretary, is: What additional
authorities--tell us as you are here today--or resources do you
need in order to address this threat that is posed by the
Chinese Government?
Mr. Estevez. I think I have the proper authorities under
ECRA, so I do not believe I am missing any authorities. I would
be remiss since you asked the question about resources--look,
you know, BIS is a fairly small organization. I could always
use more technologists, more enforcement officers, you know,
and a larger budget to use some tools that can give us access
to supply chain mapping, for example. You know, so I would
always look to Congress to help me in that regard.
Senator Cortez Masto. So let us talk about that workforce,
though. Does that workforce exist? Do we have the skill set for
what you need to be able to hire?
Mr. Estevez. I have some fantastic technologists on my
staff. I think the talent is out there. Obviously, Government
has to compete for that talent with the private sector. But,
you know, there are people like me who came back from the
private sector who want to do the right thing to protect our
national security, and I think we can access that talent.
Senator Cortez Masto. Thank you. And then, finally, how is
BIS working to protect the U.S. IP and innovation with the
interagency to ensure that critical and emerging technologies
do not land in the hands of our adversaries such as Iran and
North Korea?
Mr. Estevez. So just like our protections against China and
China's theft of IP, you know, we would have the same kind of
controls. Theft of IP is a violation of export control, because
we also control the technical data around specific
technologies. So if we found that someone that we could
pinpoint that was stealing IP, that person/entity would
probably land on the entity list, and we would take appropriate
actions with our interagency partners.
Senator Cortez Masto. Thank you. Thank you, Mr. Under
Secretary, for joining us today.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Toomey is recognized.
Senator Toomey. Thank you, Mr. Chairman.
Mr. Estevez, I just wanted to sort of try to establish some
baselines here. First of all, I trust you would agree that any
technology transfer, even as part of an outbound investment by
an American firm into China, is currently subject to existing
export controls.
Mr. Estevez. Yes, I would, Senator.
Senator Toomey. OK. So BIS, as I think you just said, has
the authority to block the transfer of really any kind of
technology, intellectual property, blueprint, procedural know-
how, software, and that does not end because a U.S. company has
entered into, say, a joint venture with a Chinese company.
Mr. Estevez. That is correct. They would need a license if
it was a protected technology.
Senator Toomey. Right. So let me just drill down on this
and make it very clear. If an American venture capital firm,
for instance, is investing in a Chinese artificial intelligence
company that has ties to the Chinese military, a technology
transfer that is associated with that deal that included some
kind of intellectual property or sensitive blueprints or
services or procedural know-how, none of that escapes the
jurisdiction of these export controls because it is part of an
investment deal.
Mr. Estevez. If there was a technology transfer as part of
that investment, that is correct, Senator.
Senator Toomey. Right. So, likewise, if an American
semiconductor firm, software firm, has a joint venture with a
Chinese company, the Chinese company cannot just get, again,
the sensitive technology, intellectual property, or any of
that; they do not come out from under the export control.
Mr. Estevez. That is correct. It is a slippery slope once
you start working with companies.
Senator Toomey. So I guess the question becomes: Is it your
view that the BIS has sufficient authority to control the
transfers of sensitive American technology to China?
Mr. Estevez. Yes, Senator, BIS has the appropriate controls
to protect transfer of technology.
Senator Toomey. OK. So you have got that authority. But I
think you have said that you think we still, nevertheless, need
to have some kind of outbound investment review mechanism, even
though you have just said we already have the authorities to
prevent any kind of technology transfer. So I think given the
limitations on time, I am going to not ask you to explain fully
how and why we need to have that limitation on investment when
you have said we already have the full authority to prevent the
technology transfer.
I guess what I would like to ask you is this: I think we
all know that when Congress passed ECRA, we did not intend for
that law to contemplate a regime to regulate and block
investment. So if we are going to stand up a regime that
empowers that, don't you think that that ought to happen as a
result of specific new statutory action by Congress?
Mr. Estevez. I agree there should be statutory action.
Senator Toomey. OK. So we should pass a law. And that comes
completely under the jurisdiction of the Banking Committee, so
the sensible way forward would be to have hearings on this to
understand the need for this. I would like to have you back for
an occasion where you could explain why you think we need this
given that you have already said we have full capability to
block technology transfer. I assume you would support and work
with this
Committee on that.
Mr. Estevez. As you know, Senator, I would always come
before this Committee if asked.
Senator Toomey. Let me ask you this: If a foreign company
violates our export controls, is that sufficient grounds for
putting that company on the entity list?
Mr. Estevez. If a foreign company violates our export
controls, that is a likely--they would be a likely candidate
for an entity list listing.
Senator Toomey. Likely candidate, so----
Mr. Estevez. Yes, I would put them on the entity list.
Senator Toomey. OK. All right. OK. Now, last year, China
conducted two hypersonic missile tests which the Chairman of
the Joint Chiefs, General Mark Milley, described as being very
close to a Sputnik moment for the United States. There is also
growing speculation that China will soon unveil its H-20
nuclear-capable stealth bomber.
Several months ago, my staff and the staff of the Chairman
requested a briefing on the hypersonic test to hear from BIS an
assessment of whether or not and to what extent any U.S.
technology that was used in the development of that system, but
we have not yet received that briefing. So I would like now to
expand that briefing to include an analysis of whether U.S.
technology of any sort has been involved in the development of
the H-20 bomber. Can you commit today to give us that briefing
within the next month?
Mr. Estevez. I will commit to give the Committee what
Commerce can give. The reality is that is a much more complex
problem that involves other agencies, including----
Senator Toomey. But we have not had the BIS briefing.
Mr. Estevez. I am happy, Senator, to give what BIS has.
Senator Toomey. And we can do that within a month?
Mr. Estevez. Yes, sir.
Senator Toomey. All right. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
Senator Tester from Montana is recognized from his office.
Senator Tester. Thanks for being here, Mr. Estevez. I serve
as Chair of the Defense Appropriations Subcommittee, and there
has been a lot of talk about national security, and rightfully
so, as it applies to your agency. Just on a side note, if we
really want--if we are really concerned about national
security, we as a Senate need to put politics in the back
pocket for once in our lives and make sure we get USICA passed
and make sure that we get our appropriations bills done by the
end of this fiscal year, which is our job. And if we do not do
that, then we are putting everything at risk that we stand for
as a Nation. And I think now is not a time to play games or
extend to a CR for even 30 days. The fact is that if we are
going to have, in my case, a Defense Department that works, if
we are going to have domestic programs that work for this
Nation, these budgets need to be out by the end of September
and no more screwing around. We need to do it. And I would hope
that everybody on this Committee pressure their leadership and
the Chairman and Ranking Member of the Appropriations Committee
to do exactly that.
I want to talk to you, Mr. Estevez, about exports to
Ukraine to fight back against the Russian invasion. Do you have
a system in place to expedite the consideration of those
exports?
Mr. Estevez. We do, Senator.
Senator Tester. Could you walk me through what that process
looks like, what that approval process looks like?
Mr. Estevez. So like all----
Senator Tester. As briefly as you can.
Mr. Estevez. Like all licenses that may require--or items
that are exported that may require a license, it goes through
the interagency process. But we would move them up to the top
of the list in order to make sure that we are providing the
Ukrainian military the capability they need to defeat the
Russians.
Senator Tester. And so what kind of timeframe do you look
at for those approvals?
Mr. Estevez. They are going within weeks, Senator, or
shorter.
Senator Tester. So there has been much said about China,
and rightfully so, because there is a lot to be said about what
China is doing. The technology that we are giving the
Ukrainians, I do not want to get into what that is at all. But
the truth is that anything we give Ukraine, you have got to
assume China can get. How do you accommodate that?
Mr. Estevez. So our export controls that I control are over
dual-use items, not the military equipment that the Department
of Defense is providing to China--excuse me, providing to
Ukraine. And, you know, none of the items that we are talking
about are like the type of high-end tech that we are looking at
protections around China.
Senator Tester. OK. You prefaced that by saying not the
military stuff. What about the military stuff? You have
oversight over that also.
Mr. Estevez. I do not have oversight over the provision of
military equipment. That is under the jurisdiction of the State
Department.
Senator Tester. What about the technology that goes with
that military equipment? Still part of the State Department?
Mr. Estevez. If it is embedded inside like a HIMARS Unit,
for example, or an M777, which is an artillery piece, that is
under the jurisdiction of State.
Senator Tester. Do you have any concern about State's
ability to be able to keep valuable information out of the
hands of Russians and the Chinese?
Mr. Estevez. It is a matter of what is captured on the
battlefield, I guess is what you would be concerned about.
Senator Tester. That is correct.
Mr. Estevez. Nothing that I am aware of--and I am not, you
know, playing in the Department of Defense's role of providing
equipment. But I am familiar with the equipment that they have
provided. None of that equipment is what I would call our crown
jewels.
Senator Tester. OK.
Mr. Estevez. Because the Ukrainians are not capable of
using that equipment, quite frankly.
Senator Tester. I have got you. The last time we had one of
these hearings in 2019, there was no one from the
Administration to testify. I was frustrated by that then, so I
just want to thank you for being here, because export controls
are really very important to our national security, and
Congress has a responsibility to provide the oversight of how
that is working, and a great way to do that is to have folks
like you in front of this Committee. So balancing our national
security with export competitiveness is also really, really,
really important.
In your role, how do you ensure that that is happening at
BIS?
Mr. Estevez. Through our interagency licensing process. It
is not just me that looks at stuff. It is the Department of
State, Department of Defense, Department of Energy for all
licenses. So that process in and of itself has a good
divergence of views, you know, that usually come together in a
coordinated fashion, and I think we--I personally believe that
we need to balance those authorities.
With that said, I also believe we do need to prevent the
most sensitive technologies from going to people who have
identified that they would like to use it against us.
Senator Tester. Thank you. Thank you, Mr. Chairman, and
thank you, Mr. Estevez.
Mr. Estevez. Thank you, Senator.
Chairman Brown. Thank you, Senator Tester.
Senator Daines of Montana is recognized.
Senator Daines. Mr. Chairman, thank you, and thank you for
coming to the Committee today. The United States is facing
serious shortages of semiconductors, used in virtually every
aspect of our economy. I believe this is truly becoming a
national security concern. Whether it is health care, whether
it is the military, semiconductors form the core of our modern
economy. I believe it is critical that we dramatically increase
domestic manufacturing as well as the fabrication of
semiconductors and ramp up our enforcement of intellectual
property violations by China. And I believe the Senate version
of USICA does just that, and they do through the important
CHIPS funding and also with the addition of my bipartisan
Protecting IP Act. I believe it is critical that our colleagues
across the aisle abandon their partisan tax-and-spend proposals
and that Congress focuses on this very real national security
threat by passing the bipartisan Senate USICA bill.
However, BIS can be doing more right now, I believe, with
their existing authorities. It is clear that China is seeking
to leapfrog semiconductor technology by stealing American IP,
and companies that are supposed to be on your entity list are
still finding a way to access American intellectual property.
So here is my question: What is BIS doing to ensure that
high-tech and national security IP is not ending up in the
hands of the Chinese Government?
Mr. Estevez. Thank you for that question. That is frankly
what I spend my sleeping and waking hours thinking about,
Senator. Now, we do have some cutoff points at the most
sensitive highest tech semiconductors and the tooling that
would make those semiconductors being allowed to be exported to
China, so there is a cutoff point. I am conducting a complete
review over those policies within BIS right now, and then there
is also an interagency process looking at this. So there is a
red line on what we would allow the Chinese to access.
With regard to listing folks on the entity list, you know,
I cannot talk about any existing investigations that we may
have, but we are always looking at all sources of data, open
source, input from, you know, articles from think tanks, and
certainly classified information on what Chinese firms may be
doing. You know, we do have a legal process that is interagency
to do that, and I always want to make sure that I have the
legal standing to get someone on the entity list that, if they
happen to sue us, we win.
Senator Daines. Mr. Estevez, how much time have you spent
in China before you served in this capacity?
Mr. Estevez. Zero.
Senator Daines. Never been there?
Mr. Estevez. Never been there, partly because, you know, my
whole career has been with the Department of Defense.
Senator Daines. Whereabouts in the region have you traveled
outside of China?
Mr. Estevez. I have been to Japan, Korea.
Senator Daines. I lived in China for 6 years, worked for
Proctor & Gamble, had two kids born in Hong Kong, and one of
the things I have--one of my missions serving the U.S. Senate
is to take U.S. Senators--this is pre-COVID--into China and to
see it. And the supply chain issues are very, very critical,
but equally critical and perhaps even a greater threat is the
innovation ecosystem that China is building, STEM graduation
rates, you know, ten times greater than the United States of
America. They are building not only in terms of the scale of
the innovation ecosystem, but now the quality of the IP that
they can generate. So it is about stealing IP, but it is now
shifting increasingly to generating IP. And I think this is one
of the greatest threats we face as a Nation over the course of
the next several decades.
Mr. Estevez. Senator, I agree that they have an incredible
ecosystem. I would put our ecosystem of a free and independent
thought process up against a directed ecosystem against that.
But with that said----
Senator Daines. As long as we can keep our freedom, the
rule of law, abundant supplies of energy, tax code to
incentivized American innovation, I agree with you. The
threats, I believe, to our long-term competitiveness are not
outside the city but they are right here in this city.
Mr. Estevez. Let us pass BIA. Let us get CHIPS funding out
there.
Senator Daines. We agree on that. Well, thank you, and I do
not want to--we should not be underestimating the threat that
China presents long term. I am not betting against the U.S. at
all. As long as we stay free, have the rule of law, and have
policies that incentivize innovation, we are going to win. But
it is a very real threat.
Mr. Estevez. I agree with you, Senator.
Senator Daines. Thank you.
Chairman Brown. Senator Warner of Virginia is recognized
from his office.
Senator Warner. Thank you, Mr. Chairman, and I appreciate
you holding this hearing.
Mr. Estevez, my friend Senator Daines just raised this
issue, and I know others have as well. I think it is critically
important from a competitiveness standpoint, national security
standpoint, that we go ahead and pass the CHIPS legislation. I
think almost all of our colleagues understand that we need to
have those fabrication facilities built here in America, that,
candidly, we are not producing any of the leading edge chips.
And as we get below 10 nanometers into even smaller and
smaller, to be dependent upon Taiwan is not smart.
I think sometimes we have forgotten, though, that what
started this whole debate--and I say this as a former telecom
guy--was when we were a little bit asleep at the switch, and
China crept up in the 5G domain and managed to set the
standards, the rules, the protocols, come forward with a
company like Huawei that was extraordinarily important. And I
just want to remind my colleagues and I hope you realize, Mr.
Estevez, that, you know, in addition to the $52 billion around
CHIPS, there is a billion and a half dollars for investment in
the USA Telecom Act that was also included in this legislation
that makes sure that we make the investments in not only 5G but
the next generation beyond 5G and wireless communications, open
radio access network.
Can you talk about what you guys are doing on the BIS tools
to make sure that we are looking at beyond 5G technology to
make sure that we reclaim some of that leadership we need?
Mr. Estevez. Thank you for that, Senator. You know, this
morning I was listening to NPR, and they used a Wayne Gretzky
quote about skating where the puck is going rather than where
the puck is. And we need to be doing that, and we are. So it is
not just what technologies are there today that need
protection. We need to look out and see what is coming down the
pike and what should we be thinking about the protections on
that. And when I have been talking to companies, that is
exactly what I am talking to them about, and it is also what I
am talking to my Defense colleagues about.
Senator Warner. Well, I do think, again, any big or slim
CHIPS-related bill, I know everybody has agreed with the USA
Telecom piece, that 5G and O-RAN needs to be a part of that,
but I appreciate that.
I want to go back again to the CHIPS piece and some of the
Huawei entity designation list. I am really concerned, and a
number of our--kind of in the memory space, a lot of our
domestic manufacturers have complained to me about the Chinese
memory manufacturer YMTC. The Financial Times just did a major
expos? on this that YMTC was providing components, parts to
Huawei. You may not be able to talk about all of the specifics
of this case, but I have urged the Commerce Department to look
very carefully at YMTC's activities. I think they are typical
of a lot of the new Chinese memory and chip-related firms.
How do you make sure we are--whatever you can say about
YMTC specifically would be great, but if you can also just
generally talk about, you know, how you are investigating
potential violations of the Huawei entity list, and how do we
make sure we maintain the integrity of our enforcement actions
to make sure that these tools have got real teeth?
Mr. Estevez. Thank you for that. Again, I cannot talk about
YMTC in particular or any entity which may or may not be under
investigation. However, what we would do, regardless of where
the allegation or the information came from, but certainly we
would like a multi-sources, including information provided by
the intelligence community. We would do a supply chain
assessment to see how they are flowing and who they are flowing
with, what companies they are doing business with and how that
occurred. We would work, again, with not just the BIS
enforcement arm but with other agencies. And when we find
sufficient data, we would move to put them on the list.
Again, it is all-source data that we need to work on. If we
find violations, we will put companies on the list.
Senator Warner. Well, there are a number of members, I
think American companies that raised this concern. I think YMTC
deserves that investigation and I believe at the end of the day
designation. But I appreciate your answers, sir, and I
appreciate the time, Mr. Chairman.
Mr. Estevez. Thank you.
Chairman Brown. Thank you, Senator Warner.
Senator Tillis from North Carolina is recognized.
Senator Tillis. Thank you, Mr. Chairman. Secretary Estevez,
thank you for being here. I was happy to support your
confirmation.
When I come to this hearing, anytime I talk about export
controls, first off, thank you for what you have done for
Russia. I think it is having an impact, and the dozens of other
nations who have followed suit. But when I look at our greatest
threat, it is China. And I look at through three lenses: in the
Banking Committee, the venue that we are here today; in my
position on Senate Armed Services, where we have received some
of the briefings that Senator Toomey has rightfully requested
and should receive; and also through the Judiciary Committee.
In the Judiciary Committee in particular, I am Ranking
Member on the Intellectual Property Subcommittee, and we have
had numerous hearings on China's theft of intellectual
property. In fact, down in Charlotte, there is a company called
Charlotte Pipe. It has been in the family for almost 100 years.
It looks like an old-fashioned foundry. It is high-tech, but
its look looks like it was back maybe 75 years ago. You can go
to a province in China, and there is a Charlotte Pipe, a
complete rip-off of intellectual property. It looks like a
Hollywood set of this business in North Carolina, inferior
products being shipped and imported into the United States. We
have caught them a couple of times, but they just shamelessly
do it. And I assume that is with the full approval and
agreement with the CCP and Xi Jinping.
If you take a look at their J-20 fifth generation fighter,
it looks--in fact, if it were flying out of Cherry Point, I
would mistake it as an F-35. Maybe it was just coincidental, or
perhaps they stole our intellectual property, and they damn
sure did not steal it on the battlefield. They are
consistently, as a Government, turning a blind eye toward
intellectual property theft. Yeah, they are innovators and they
have gotten better, and I agree with Steve Daines, they are an
innovator. They have got a middle class that is almost twice
the size of our U.S. population. I understand the need for
businesses to invest in China. But I also think that we have to
match China strategically.
In August, I am going to be on a trip that will take me to
South America and Africa, and most of my focus is going to be
on Chinese investment in this hemisphere and in Africa that
have dual-purpose uses. Virtually every dollar that China
invests in outside of their country has a dual purpose, an
economic and military purpose, and we have virtually no answer
to that.
So in my opinion, we have got to get smart. We have to play
the same game that they are playing. And if we do not, then Xi
Jinping will achieve his objective of being the economic and
military superpower by 2050. And we no longer have to think
about the threat of the invasion of Taiwan as hypothetical. We
have seen what Putin has done in the Ukraine. It is a real
threat. And we only have to look to Hong Kong to see that China
would be prepared to do it if they thought they could get away
with it.
Think about what would happen if China took Taiwan and how
disruptive that would be to the global economy, and
particularly the United States economy with the technology that
we rely on out of that part of the world.
So I have got a debate club in my office, Senator Toomey.
Half of them, if the light shines on them right, it looks just
like you in terms of being very careful about controlling
outbound investment. The other half, who happens to be the
people who sit on the Judiciary Committee, my Judiciary staff,
and my Senate Armed Services staff say, ``We have got to do
something differently here. We have to recognize them
differently.'' We do have to have free trade with China, but it
has got to be fair. And there has to be a consequence when they
are not playing by the rules. And they are absolutely not
playing by the rules.
And, by the way, on CFIUS, I have had personal experience
with CFIUS where I think we have got work to do there. We get
some transactions swept up in CFIUS that should not. I think
there are some reviews that need to go more quickly. We ended
up getting one done that affected a North Carolina-based
business. But I do think it is time for us to sit at the table
and figure out if we are going to play the same game China is
playing or if we are going to let them unilaterally use every
device that they have--and we do not. So the only question I
have for you in the 30 seconds remaining, when you are taking a
look at outbound--or any sort of export controls right now in
your lanes--and I know you talk about where the DOD comes in--
is the intelligence community and the DOD involved in your
decisionmaking process?
Mr. Estevez. The intelligence community provides
information. The DOD is part of the decisionmaking process.
Senator Tillis. How active are they in the final
decisionmaking process? Do they provide inputs, or are they at
the table?
Mr. Estevez. They are at the table.
Senator Tillis. Good. Last thing here, I ask this of people
all the time. What is the best thing in this Congress that
could come out that could provide you tools that you think are
necessary to match up against the China threat?
Mr. Estevez. You know, I talked about some resources, you
know, certainly some----
Senator Tillis. So you think you have the authorities, you
just need more people?
Mr. Estevez. There is one authority that is a provision in
one of the China bills that would give me authority to do some
things on people working with the Chinese intelligence.
Senator Tillis. Are there any proposals in Congress right
now that would not be particularly helpful?
Mr. Estevez. No--I should not say that, no.
Senator Tillis. What are they?
Mr. Estevez. We believe that our interagency process works
very well, and that, you know, it needs to remain that way.
Senator Tillis. OK, so what specific proposals are you
concerned with?
Mr. Estevez. There are proposals around making the first
discussion over a licensing decision a public record, so how
did the DOD vote? How did DOE vote? How did State vote? And how
did Commerce vote? And there is a process that that works, and
only 0.14 percent actually gets escalated after discussion,
because what we do is we provide information we pull from your
question, the intelligence community, and we look at all
sources to get the right answers.
Senator Tillis. Got it. Thank you.
Thank you, Mr. Chair.
Chairman Brown. Thank you. And, Mr. Under Secretary, follow
up a little more on extending authorities that Senator Tillis
just raised, what more you need precisely so we understand
better.
Mr. Estevez. Yeah, in ECRA, or maybe it was passed after
ECRA, there is a control that supports--stops U.S. persons from
supporting Chinese military, and we need it to be a little
broader, to Chinese military and the Chinese intelligence
community, you know, the surveillance community that are doing
things. So it would expand the export control, which I think
was the original intent of the legislation. It just came out
narrower than it was intended.
Chairman Brown. OK. Thank you. And, Senator Tillis, thank
you for raising that and allowing you to explore a little
better.
Your agency, BIS, has done impressive work to build an
international coalition that has imposed sweeping export
controls in response to Russia's unprovoked war in Ukraine. I
spoke in my opening statement about the President's impressive
assembling of the coalition in terms of pushing back on Russia
and from Sweden, to Switzerland, to Finland, to Germany and
beyond. And your export controls have been really important.
How do you evaluate the effectiveness of these controls?
How will it inform future actions?
Mr. Estevez. So we work with, again, our interagency
partners and with those countries and certainly with the
intelligence community to assess what is going on. And we
listen to Russia's own statements. You know, Putin himself made
a statement about concerns about the semiconductor--loss of
semiconductors coming into Russia. I know from my personal
experience, you know, in the Department of Defense you need
semiconductors to make a precision guided weapon.
Now, the Russians do not seem to care about precision
guided, you know, because they are indiscriminately hitting
civilian populations. But the reality is they are going to run
out of capability and are going to be incapable of sustaining
their force over time.
Chairman Brown. Thank you. President Biden took office with
the campaign promise that ``Human rights will be the center of
our foreign policy.'' That, as you know, as the world knows,
was a dramatic reversal of his predecessor's foreign policy.
What actions has BIS taken to follow through on that promise?
And answer also what other actions do you plan to take?
Mr. Estevez. So human rights are part of the regular
license review process, so any license that comes before us,
you know, we look to assess whether there is a human rights
issue around that. You know, certainly surveillance technology
is a great example of that.
We have a number of Chinese firms--I do not have the exact
number off the top of my head--that we have put on the entity
list related to their use of surveillance technology and also
to the suppression of the Uyghur minority in Xinjiang. And, of
course, we are working with the interagency on the Human Rights
Initiative and what export controls would be appropriate in
that vein.
Chairman Brown. OK. As the President of the Richmond
Federal Reserve told me once, ``Watch what I do, and let me
know that you are watching what I do.'' And we will be watching
you. I understand your good intentions, but we will be watching
on human rights, so thank you for that, Mr. Under Secretary.
Last question. You said recently BIS should take the
partnerships you build, in responding to Russia, and build a
new, your words, ``digital export control regime for the 21st
century.'' I am a strong proponent, as a number of people in
both parties in this Committee are, of international
cooperation and updated efforts that would address civil and
military fusion policies, human rights violations, strategic
supply chains, and other shared national security and foreign
policy concerns.
Describe, if you would, in more detail your work on that
effort and discuss, if you would, the conversations with allies
on what national security and foreign policy such a regime
would address and how you would go about identifying the tools
and technology that warrant control.
Mr. Estevez. Certainly, and when I talk about this,
Senator, you know, I am not talking about replacing the
existing Missile Control Regime or the Wassenaar Agreement. You
know, this is a supplemental. The reality is time has changed
since those regimes were put in place. It used to be the U.S.,
for example, the Department of Defense was the generator of
innovative technology. That is not the case. Today it comes
from the commercial sector. We have this great group that we
have put together to address the Russia controls, and, again,
semiconductors is a great area of that. We have a threat
arising from China and from other nations, and we are working
with them talking about what would be the appropriate control
regime that we should be working together on that. And we are
certainly talking to our partners in the EU, the specific
nations of the EU, our Five Eyes partners, and our partners in
Asia about those issues.
Chairman Brown. Thank you, Mr. Under Secretary. Let me ask
one more question. Senators Menendez and Warren are on the way.
One other question. BIS has added a number of parties to the
entity list and military end-user list. Describe the end-user
tools that BIS uses to address entities of concern. What
considerations guide the use of end-user controls?
Mr. Estevez. So we look at who the exporter says it is
going to, and, again, we draw on the full capabilities of the
interagency, including the intelligence community, to see who
that end user is, who that end user is related to, so we can
see if there is diversion potential. And that is how we would
make a decision on a licensing agreement or whether someone
should go on the entity list.
Chairman Brown. Thank you. Senator Menendez from New Jersey
is recognized.
Senator Menendez. Thank you, Mr. Chairman.
Under Secretary Estevez, we are facing an epidemic of gun
violence in our country, and we continue to see armed conflict
and even human rights abuses abroad committed with American-
made weapons. We are told that export control of semiautomatic
weapons are safer at Commerce than at the State Department
because BIS has dedicated agents to do end-use monitoring on
these firearms after they are exported; whereas, State
supposedly does not.
However, isn't it true that such agents are checking to see
if such exports are diverted to unapproved persons but not
checking for whether or not such firearms are being used for
human rights abuses?
Mr. Estevez. As I just answered Senator Brown before you
came in, human rights are part of the licensing review, and
certainly for firearms they are at the top of the list for
licensing review, and we do that with the Department of State,
Department of Defense, and Department of Energy. And when we do
our enforcement actions, we would do likewise.
Senator Menendez. But the end-use efforts, isn't it really
that they are diverted to--making sure they are not diverted to
unapproved persons? You are not really doing human rights
monitoring on end use, are you?
Mr. Estevez. We are doing human rights monitoring in the
initial export decision, and should someone use an export
inappropriately, we would look at, you know, our other tools,
for example, entity list or blocking further licensing.
Senator Menendez. At least at State the Congress was able
to review and disapprove such sales above $1 million on human
rights grounds if it so chose. What congressional check has
there been since the transfer of jurisdiction on those proposed
exports?
Mr. Estevez. As I believe you are aware, Senator, we have a
rule that is going to go into effect on the 18th, on Monday,
that will provide congressional notification regarding weapons
over a certain amount, and it precludes our providing to our
allies.
Senator Menendez. Yes, I appreciate that, and I was happy
to discuss that with Secretary Raimondo. However, even after
the rule becomes effective, Congress will not be able to
disapprove any such sales. Isn't that correct?
Mr. Estevez. But you will see them in advance, and you can
certainly provide----
Senator Menendez. Let me reiterate my question. Congress
will not be able to disapprove such sales. Isn't that correct?
Mr. Estevez. That is correct.
Senator Menendez. OK. Now, President Biden, when he was a
candidate, promised that he would reverse President Trump's
transfer of export control of semiautomatic weapons to Commerce
and return control to the State Department, which he can do
simply by regulation, and in so doing make them subject again
to the Arms Export Control Act and, therefore, congressional
oversight. Do you know of any progress within the
Administration in fulfilling the promise made by the President?
Mr. Estevez. I do not, Senator.
Senator Menendez. OK. Let me ask you a different question.
A New Jersey medical device manufacturer and its union
employees received medical grade stainless steel tubing from a
longstanding supplier in Korea. The company has applied for and
received limited exclusions from the Section 232 quota for this
tubing, but managing inventory timing remains a huge and costly
challenge even with those exclusions in place. The company has
had to estimate its needs far into the future and stockpile
tubing for up to a year at a time, costing them about a quarter
million dollars annually.
In December 2020, BIS released a list of general approved
exclusions for the Section 232 Korea steel quota, and anything
classified under the HTS codes on that list are no longer
subject to the quota cap. In my constituent company's
interaction with BIS, career staff indicated additions to the
list would be made over time, but to date, it is my
understanding that no new exclusions have been granted under
this process.
Can you explain the process and timeline for placing
additional HTS codes on the list and what other criteria that
are necessary to see additions made to the list?
Mr. Estevez. On February 22nd, before I was confirmed into
the position, BIS put out for public comment asking for
comments on additional exclusions to the list. We have received
98 comments to date, and we expect to have a rule out by the
end of the year.
Senator Menendez. I hope that BIS can continue to review
new applications for general approved exclusions and make new
additions where necessary.
One last question. Much of your job involves making sure
critical technologies do not fall into the hands of foreign
adversaries, human rights abusers, or other rogue actors. Can
you explain why maintaining America's technological leadership
is so critical to our national security and the mission of BIS?
Mr. Estevez. Thank you for that, Senator. Having American
technology being used to develop military capabilities that are
on par with ours certainly threatens our national security. You
know, when I was in the Department of Defense, my job was to
arm U.S. forces, to provide the weapons and capabilities that
they use, because we never want to put a U.S. soldier, sailor,
airman, or marine into a fair fight. And my job right here is
to protect American technology from being used by an adversary
to do that. That is my North Star, Senator.
Senator Menendez. So, therefore, we want to be in an unfair
fight where we are on the side of the unfairness.
Mr. Estevez. We want to be on--if an adversary is
threatening us, we want to win.
Senator Menendez. Right. Thank you very much.
Chairman Brown. Thank you, Senator Menendez.
Senator Warren from Massachusetts is recognized.
Senator Warren. Thank you, Mr. Chairman.
I want to ask specifically about military assault weapons
like the one that was used on the 4th of July to kill seven
people in Highland Park.
Now, Congress should reinstate the assault weapons ban to
keep these guns off our streets, but we should not be shipping
them to just anyone overseas either. In fact, companies need
license from the Federal Government to sell assault weapons
overseas. These are called ``export licenses.'' But in 2020,
the Trump administration made it easier to get that permission
by putting the Commerce Department in charge instead of the
State Department where those permissions had always resided.
This shift is important. The State Department has deep
expertise in foreign instability, human rights abuses, and
terrorism. The Commerce Department specializes in promoting
U.S. industry overseas, even the gun industry. In the 2020
campaign, President Biden promised to reverse the Trump
decision and put export control back with the State Department,
but as of today that has not happened.
So, Under Secretary Estevez, how many billions of dollars
in assault weapons sales has Commerce approved since it took
over export control in March 2020?
Mr. Estevez. I will have to get back to you on the exact
amount, Senator, so I will get you that----
Senator Warren. Do you want to do an estimate? I think your
records show----
Mr. Estevez. I think the website shows $15 billion.
Senator Warren. $15.7 billion.
Mr. Estevez. Across all types of weapons, not just assault
weapons.
Senator Warren. So Commerce approved $15.7 billion in
weapons sales in its first 16 months on the job, and by
comparison, when the State Department was making these
decisions, it approved $12 billion on average in the same time
period, including some weapons that never got transferred to
Commerce. So if you do the math, that is about a 30-percent
increase.
Now, that is a huge boon to the gun industry. The $15.7
billion in Commerce-approved exports is nearly as large as the
current size of the entire $19 billion U.S. gun manufacturing
industry.
Export control law gives Commerce a lot of authority to
disapprove license requests, including if such weapons sales
threaten our national security or undermine our foreign policy.
So, Under Secretary Estevez, how often since March 2020 has
the Commerce Department actually denied the gun industry's
request to export these assault weapons?
Mr. Estevez. Senator, a couple of things, and it is a small
percentage, and, again, I do not have the percentage off the
top of my head.
Senator Warren. Well----
Mr. Estevez. But can I answer a couple other points? The
State Department is part of my review process. The State
Department can stop a sale.
Senator Warren. I am asking, now that you have the approval
process, what have you done? How many have you disapproved in
that time period? Do you know the number?
Mr. Estevez. I do not know the number, Senator.
Senator Warren. It is four-tenths of 1 percent. That is,
less than one-half of 1 percent of the applications are
disapproved, which sounds a lot like the Commerce Department is
rubber-stamping these license applications, including to places
like Mexico, where corruption puts these weapons in the hands
of criminals, or the Philippines, where there are multiple
reports of security forces shooting civilians.
Now, President Biden has stated clearly that he supports
cracking down on assault weapons both at home and overseas, so
let me ask, Under Secretary Estevez: Can you explain how
increasing assault weapons export licenses by 30 percent and
turning down less than one-half of 1 percent of applications is
consistent with the President's stated objectives? Is the
Commerce Department working for the President or working for
the gun industry here?
Mr. Estevez. Senator, that also includes sales to people
like Ukraine that are using those weapons against the Russians
right now.
Senator Warren. I have no doubt.
Mr. Estevez. So this is an interagency process now that it
has moved to Commerce. There is the power of the Department of
State that brings State's jurisdiction to that discussion, the
Department of Defense, and the Department of Energy. So it is--
--
Senator Warren. So wait a minute----
Mr. Estevez. --an interagency process that approves gun
licenses.
Senator Warren. Excuse me, Under Secretary----
Mr. Estevez. It is not just the Commerce Department.
Senator Warren. Excuse me. What happened is authority was
transferred to the Commerce Department, and what has happened
is that it has a minuscule disapproval rate and the weapons
sales have gone up dramatically.
Look, the Commerce Department is helping put more assault
weapons in more hands, and this needs to stop. It is time to
put overseas gun sales back in the hands of the State
Department where someone can exercise better judgment over it.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren.
Senator Moran is on his way back. Senator Toomey has one
more question.
Mr. Estevez. Certainly.
Senator Toomey. Mr. Estevez, we spoke briefly earlier about
how to determine whether or not U.S. technology is involved in
the development of China's stealth bomber and hypersonic
missile, and we talked about a briefing, and you agreed that
you would do the briefing. But subsequent dialog suggested that
it might be useful to involve the DNI in that briefing. Will
you work with us to make sure that we get a comprehensive
insight into this and the input of the DNI?
Mr. Estevez. I absolutely will work with you on that,
Senator.
Senator Toomey. Thank you very much.
Chairman Brown. Thank you, Mr. Under Secretary. It looks
like Senators Moran and Van Hollen we thought were on the way
but they may not be. Thank you for the work that BIS is doing
on many fronts to impose economic consequences against Russia
in the wake of their invasion of Ukraine. Your work is so
important. Thanks for the use of tools at your disposal to
defend our national security.
For Senators who wish to submit questions for the hearing
record, those questions are due 1 week from today, Thursday,
July 21st--my wife's birthday, I might add. Under Secretary
Estevez, please submit your responses to questions for the
record within 45 days from the date you receive them.
The Committee on Banking, Housing, and Urban Affairs is
adjourned.
[Whereupon, at 11:10 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
Today we welcome our witness, Alan Estevez, who serves as Under
Secretary for Industry and Security at the Department of Commerce.
I thank Ranking Member Toomey and his staff for their help in
confirming Under Secretary Estevez and the two Assistant Secretaries at
the Bureau of Industry and Security--Thea Kendler for Export
Administration and Matt Axelrod for Export Enforcement.
This is the first time since we passed the Export Control Reform
Act in 2018 that Congress has fully confirmed BIS leadership.
Because of this Committee's work, for the first time since 2013 we
have a full, confirmed Federal Reserve Board.
Yesterday we confirmed a fourth member of the Ex-Im board. We
finally have a fully functioning Export-Import bank.
And for the first time in our history, these nominees are beginning
to look more like America.
The world changed this year on February 24, when Russia invaded
Ukraine, continuing its barbaric war on the Ukrainian people and their
sovereignty.
Putin has been shocked by two things:
The strength of the Ukrainian resistance and the skill of this
President in assembling and uniting a broad coalition, the likes of
which we haven't seen in decades--Germany, Finland, Switzerland.
We've isolated Russia and limited its ability to access the tools
and technologies it needs to continue its grotesque war against
Ukraine.
And BIS has been integral in our international response to siphon
off Russia's access to military material. It quickly rolled out a
sweeping series of rules designed to stall and degrade Russia's
military and technological capabilities.
BIS targeted Russia's defense, aerospace, and maritime sectors, and
it applied controls to U.S. exports and to items produced abroad that
use U.S. software, technology, or equipment.
Since February 24, BIS issued 12 new rules, ramped up enforcement
activity, and continued to build what Assistant Secretary Axelrod
called ``the broadest expansion of multilateral export controls among
like-minded partners since the creation of CoCom back in 1949.
The results have been impressive.
Exports to Russia by countries who have imposed sanctions have
fallen by 60 percent.
At the same time BIS weakened Russia's military, it committed to
ensuring that those items that benefit the Russian people, like medical
supplies, are still available.
This ability to distinguish bad actors--whether they're State or
non-State actors--while still allowing innocent civilians to benefit
from U.S. exports is crucial, as the agency builds on this new
international coalition to address other national security and foreign
policy challenges.
To that end, Under Secretary Estevez, I am encouraged by your
statements calling for strengthening or supplementing our existing
multilateral regimes.
Enhancing our multilateral regimes requires patience--by BIS and
Congress. And we must work with allies to identify the items and
technologies that present a risk to our collective national security.
This is important work, and I am pleased to hear that it is one of
Under Secretary Estevez's top priorities.
Back in 2018, when this Committee worked to enact the Export
Control Reform Act, we included policy statements, guiding BIS in
developing export control policy.
One of those guiding principles is that our national security
requires that the United States maintain our leadership in science,
technology, engineering, and manufacturing.
That value should guide our export control policy. And it should
also guide our work in Congress.
We do not want to be at the mercy of our competitors--or our
adversaries--for technology and other inputs vital to a 21st century
economy. Dependency on countries like China poses a huge economic risk
and an unacceptable national security risk.
It's why we need investments in research and development, and in
our fellow citizens.
We have an innovation and competition bill in conference that would
do just that.
Ranking Member Toomey and his staff have worked in good faith with
me and my staff to negotiate this Committee's conference provisions. I
thank them for that important work.
We have reached bipartisan agreements on provisions with the House
Foreign Affairs Committee and the House Financial Services Committee.
It is time for us to vote on and pass a final bill that promotes
U.S. science, technology, and manufacturing, so that we can maintain
U.S. economic leadership.
This bill will create thousands of good-paying jobs in Ohio and
around the country--jobs in growing industries, jobs where you can
build careers. In my State, more than 10,000 jobs are at stake.
Business leaders and labor leaders are both desperate for this
investment.
The head of the Ohio Chamber of Commerce--former Republican
Congressman Steve Stivers--and the head of the Ohio Business
Roundtable--former Republican Congressman Pat Tiberi--have been
particularly vocal about this support.
We must act now.
For decades, at the behest of corporate America, policymakers of
both parties have passed bad tax policy and bad trade policy that
allowed these companies to move American jobs and supply chains and
technology abroad--always in search of lower and lower wages.
And when the production moves abroad, the innovation moves with it.
We invented semiconductor chips. Now 90 percent of chips are made
overseas.
We have to fix that. Now.
Americans have waited long enough. We should pass this bill this
month.
If Congress is serious about the threats that face us, it must be
similarly serious about supporting American innovation.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman. Under Secretary Estevez, welcome.
The Bureau of Industry and Security, or BIS, determines which U.S.
goods are too sensitive to be shipped abroad. In the face of China's
drive for dominance in key tech sectors, BIS's mission today is as
important as ever.
By setting U.S. export control policy on items used for both
civilian and military purposes, BIS effectively has the power to
reshape the supply chains of entire industries. That means BIS must
craft export controls in a prudent, thoughtful, and effective manner
that advances U.S. national security interests without unduly harming
America's economic interests.
The issue I would like to focus on today is a legislative concept
that has received a growing amount of attention in recent months, falls
squarely in the jurisdiction of this Committee, and would
unquestionably impact BIS's mission and workflow, if enacted. I am
referring to a concept known as ``outbound CFIUS.''
The idea is to establish a new agency within the Executive branch,
and give this agency vast, potentially unchecked authority to regulate,
intervene in, and block all kinds of potential activities, including
prohibiting Americans and U.S. firms from investing in, selling to, or
buying from companies in certain countries, most notably China.
Outbound CFIUS could also provide the President with extremely
broad authority to determine which industries to subject to regulation.
It is not just semiconductor firms that would be affected. Any industry
determined to be in the national security interest of the United States
could be impacted.
President Biden's recent invocation of the Defense Production Act
for baby formula is just the latest reminder of how the Executive
branch can abuse the term ``national security.'' President Trump also
abused the notion of ``national security,'' having the Commerce
Department laughably assert in a 232 investigation that the import of
foreign cars was a threat to our national security.
In fact, it appears that Mr. Estevez agrees with this, because
during his confirmation hearing before this Committee he said to me,
``232 is an important tool . . . Section 232 needs to be looked at in a
hard national security lens, Senator. It shouldn't be used willy-
nilly.'' I share Mr. Estevez's concern about national security
authorities being abused by a President ``willy-nilly.''
It is not an overstatement to suggest that hundreds of thousands of
U.S. companies and tens, if not hundreds, of billions of dollars in
commerce could be impacted by outbound CFIUS.
The rise of China presents the United States with the greatest
security challenge we've faced since the end of the Cold War. I am
clear eyed about the fact that the Chinese Communist Party has embarked
on a concerted, whole-of-Government campaign to surpass the
technological leadership of the United States in areas that will
underpin geopolitical military and economic power for decades to come.
But how we address this challenge matters.
Doing outbound CFIUS, and getting it wrong, could impede the
national security agencies--such as BIS or CFIUS--that are already
doing important work on China. Getting it wrong could also severely
harm the United States.
We cannot prevail in this contest with China by emulating China,
like the China competition bills before the Senate envision. Instead,
we must out innovate China and protect our intellectual property from
theft and illicit transfer.
That means ensuring that the United States remains the single
greatest global destination for capital formation, research and
development projects, and the smartest minds in the world to come and
work. Getting outbound CFIUS wrong puts all this into jeopardy by
disincentivizing the flow of capital, ideas, and people to come to the
United States.
There are many important questions about outbound CFIUS that remain
unanswered. For example, what is the problem outbound CFIUS is
attempting to solve? How do current laws and authorities, such as
export controls, address or fall short of addressing this problem? How
would outbound CFIUS affect the United States as a destination for
capital formation and technological innovation?
I am not the only one concerned about the reasoning and
implications of standing up an outbound CFIUS mechanism. I have here a
letter from three former officials from the last Administration who
directly oversaw CFIUS and export controls.
It raises concerns about the scope and justification for outbound
CFIUS, and it calls for any such mechanism to be grounded in a clear
statutory law brought about through regular order. If Mr. Estevez's
predecessors are concerned about the way in which outbound CFIUS is
playing out, I think he should be too.
In addition, 11 trade associations representing hundreds of
thousands of companies and workers sent a letter to Congress expressing
opposition to the inclusion of outbound CFIUS in the China competition
bills under consideration. I ask that these two letters be entered into
the record of this hearing.
Given these concerns, Congress must take the time to properly
evaluate the outbound CFIUS concept rather than rushing to enact it.
______
PREPARED STATEMENT OF ALAN F. ESTEVEZ
Under Secretary for Industry and Security, U.S. Department of Commerce
July 14, 2022
Chairman Brown, Ranking Member Toomey, Members of the Committee,
thank you for inviting me to testify today on the work of the Commerce
Department's Bureau of Industry and Security, or BIS.
BIS's mission is to advance U.S. national security, foreign policy,
and economic objectives by ensuring an effective export control and
treaty compliance system and promoting continued U.S. strategic
technology leadership.
We execute this mission by imposing appropriate controls on exports
and reexports of lower capability military items, dual-use items (i.e.,
those items having both commercial and military or proliferation
applications), and predominantly commercial items. We have the
authority to seek criminal and administrative sanctions when
appropriate for violations of our export controls. We also play an
important role in Commerce's analysis and support of our industrial
base, and the Department's participation on the Committee on Foreign
Investment in the United States (CFIUS).
Put another way, our primary goal is to prevent malign actors from
obtaining or diverting items, including technologies, for unauthorized
purposes, in order to protect our national security and advance our
foreign policy objectives while supporting the competitiveness of our
key industries.
BIS's mission has never been more relevant. We face ongoing
national security threats from Nation States--China, Russia, Iran,
North Korea--as well as from terrorists and other non-State actors.
However, on top of the traditional threats posed by those actors, we
also must contend with an evolving threat landscape and the use of
commercially available technologies to further activities of concern,
including human rights abuses.
As Under Secretary of Commerce for Industry and Security, I view my
role as the ``Chief Technology Protection Officer'' of the United
States. BIS operates at the nexus of national security and technology,
and export controls are a unique and powerful tool for responding to
the modern threat environment that we face. This is particularly true
when we work together with our allies and partners.
We are in an important moment for our national security, and today
I will focus on BIS's role administering and enforcing export controls
to address four critical challenges: first, our response to Russia's
further invasion of Ukraine; second, the pacing threat that China
represents; third, the identification of emerging and foundational
technologies essential to national security; and finally, the need to
build a durable, multilateral technology security framework for the
future use of export controls.
Responding to Russia's Further Invasion of Ukraine
BIS has robust authorities under the Export Control Reform Act of
2018, or ECRA. Using those authorities, BIS has imposed sweeping export
controls on Russia for its unjustified, unprovoked, and premeditated
further invasion of Ukraine, and on Belarus for its substantial
enabling of that invasion. And thanks to the additional resources
Congress provided to BIS in the Ukraine Fiscal Year (FY) 2022
supplemental spending bill, we are prepared to sustain and expand those
actions against Russia and Belarus.
Our goal is to choke off exports of technologies and other items
that support Russia's defense industrial base, including defense,
aerospace, and maritime sectors, and to degrade Russia's military
capabilities and ability to project power. While the impact of our
export controls will only increase over time as Russia is unable to
repair, replace, and replenish its military hardware, we are seeing
substantial impacts of our actions in the data available to date:
Since the start of the invasion on February 24 through July
1, 2022, U.S. exports to Russia in categories of items subject
to new U.S. export license requirements decreased by 95.9
percent by value as compared to the same period in 2021.
Overall U.S. exports to Russia have decreased by
approximately 88 percent by value over the same period in 2021
(February 24-July 1, 2021).
Analysis of trade data conducted by the Peterson Institute
for International Economics (PIIE) shows that, of the 54
countries that make up approximately 90 percent of Russia's
imports, those with similar export controls against Russia in
place have seen total exports to Russia decline by a cumulative
60 percent since the invasion. Exports to Russia from countries
that have not imposed similar controls are also down 40
percent.
PIIE goes on to point out that ``the inaccessibility of
foreign tech and components is hitting Russia's maintenance;
supply; and future development of chips, guided missiles,
tanks, cars, planes, and much more. Russia's own economy
ministry is projecting a GDP contraction of up to 12.4 percent
in 2022.''
There are numerous open-source reports on the need for Western
semiconductors as key inputs to Russian weapons systems. Since our
controls have fully taken effect, there has been a 74 percent reduction
by value of global exports of semiconductors to Russia compared to the
same period in 2021 (March-May). This has prompted Putin himself to
issue public concerns about where Russia will source these critical
inputs.
We have also taken multiple actions that have impacted Russia's
aerospace sector, which is reliant on U.S. and European manufactured
planes, parts, and service necessary to maintain them. There have been
reports that Russia will have to ground between half and two-thirds of
its commercial fleet by 2025 in order to cannibalize them for parts due
to the export controls and enforcement actions we have implemented. And
as our recent Entity List actions demonstrate, where we identify
companies that attempt to backfill our restrictions, we will take swift
action.
These are just some examples of the impact our controls are having
to date. This is one of the most aggressive and robust uses of export
controls against another country, and these impacts would not be
possible without the unprecedented level of coordination with our
allies and partners around the world.
While there is an appropriate role for unilateral export controls,
as Congress noted in ECRA, ``[e]xport controls that are multilateral
are most effective[.]'' If other countries supply the same types of
items that the United States restricts, the U.S. controls will be
ineffective for two reasons. First, the countries or parties of concern
will still acquire the items at issue. Second, U.S. technology
leadership will be threatened if foreign competitors can undercut U.S.
companies and earn revenue to invest in research and development. Thus,
coordinating with allies and partners also helps keep a level playing
field for U.S. companies and helps maintain U.S. technology leadership
and competitiveness, all of which contribute to national security, as
described in ECRA.
Thanks to the hard work done by the Biden administration--from the
President on down--we have built a coalition of 37 other countries so
far who have agreed to adopt substantially similar controls on Russia
and on Belarus.
Our message to countries that have not joined our restrictions on
exports to Russia is that if they share our horror at Russia's
aggression against Ukraine and our respect for the rule of law, they
should join the United States and our partner countries around the
Indo-Pacific and Europe in imposing stringent restrictions on exports
to Russia.
To maximize the effectiveness of our controls, we have conducted
extensive outreach to the public to educate them on the changes. BIS
conducts regular outreach to the exporting community to inform and
share best practices, and utilizes international partnerships to
educate foreign companies about U.S. export controls. Since February
24, we have conducted outreach on the new controls to over 3,000
entities and individuals.
In addition, we are aggressively enforcing the new controls. We
deploy a variety of resources and tools to ensure effective
enforcement, including leveraging relationships with other law
enforcement agencies, the Intelligence Community, and international
partners. BIS conducts physical inspections (e.g., end-use checks and
port inspections/detentions) to detect illicit procurements, and we
investigate potential violations of U.S. export controls and, if
appropriate, vigorously pursue criminal and civil penalties. Since
Russia's further invasion of Ukraine on February 24, we have detained
or seized 218 shipments valued at $90 million.
Related to my earlier statements about Russia's deteriorating
commercial aviation industry, we have tracked and publicly released a
list of over 150 aircraft that we believe operated in violation of our
Russia and Belarus controls, in order to provide notice to the world
that servicing these aircraft is itself violative of our rules. We also
recently issued our first public charging letter against Russian
oligarch Roman Abramovich related to his improper export of two private
planes, alongside a seizure warrant for the planes obtained by the
Department of Justice. We have issued nine temporary denial orders, or
TDOs, against various Russian airlines, which effectively cut off not
only their right to export items subject to our regulations from the
United States, but also their right to receive or otherwise participate
in exports from the U.S. of such items.
The Pacing Challenge: China
As we continue our robust response to Russia's further invasion of
Ukraine, we remain focused on aggressively and appropriately using our
tools to contend with the long-term strategic competition with the
People's Republic of China (PRC).
The PRC threat to our national security and foreign policy
interests is real. My north star at BIS as it relates to China is to
ensure we are appropriately doing everything within our power to
prevent sensitive technologies with military applications from getting
into the hands of China's military, intelligence, and security
services.
Export controls are at the forefront of the many tools that the
Biden administration is using to coordinate and respond to China's
destabilizing activities. We are using our controls to address China's
military-civil fusion strategy that seeks to divert dual-use
technologies to military uses, military modernization, WMD program
development, human rights abuses, and efforts to destabilize the Indo-
Pacific region. Confronting these actions protects our national
security and advances our values and interests, as well as those of our
allies and partners. This is a dynamic threat environment, and we are
constantly evaluating our existing authorities and thinking about how
we can employ our tools to maximum effect.
We continue to maintain comprehensive controls related to the PRC,
including requiring a license for: all military and spacecraft items
under our jurisdiction; all multilaterally controlled dual-use items; a
large number of dual-use items with extensive commercial applications
if the item is intended, entirely or in part, for a military end use or
military end user in the PRC; and all items under our jurisdiction, if
the item is exported knowing it will be used in certain WMD programs or
if it is intended, entirely or in part, for military-intelligence end
uses or end users in China. In addition, the Export Administration
Regulations (EAR) prohibit certain U.S. person activities that would
support WMD-related activities or military-intelligence end use or end
users in China absent authorization. Thus, the EAR's licensing
requirements for China seek to prevent activities that threaten U.S.
national security and foreign policy interests while allowing
commercial activities that do not raise such issues.
We also use our Entity List to identify parties of concern, many of
whom are subject to license requirements for all items under our
jurisdiction, regardless of the sensitivity of the item. Currently, we
have nearly 600 Chinese parties on our Entity List--107 of those added
during the Biden administration. These parties have been added for a
variety of reasons ranging from supporting China's military
modernization and WMD programs, to supporting Iran's WMD and military
programs, to facilitating human rights abuses in Xinjiang. These
parties include those involved in artificial intelligence,
surveillance, biotechnology, and quantum computing.
We are continually assessing available open-source, proprietary,
and classified information, in coordination with our interagency
partners, for the addition of other parties to the Entity List and
other restricted party lists maintained by BIS in connection with the
enabling of China's military-civil fusion strategy and other malign
activities.
Addition to the Entity List means that anyone seeking to export or
transfer items under Commerce jurisdiction to a listed party must first
seek a license to do so from Commerce. As with all license
applications, those applications are generally reviewed by the
Departments of Commerce, State, Defense, and Energy. As a general
matter, such license applications for parties on the Entity List are
reviewed under a presumption of denial. For those entities not subject
to a comprehensive presumption of denial, the Entity List provides
clear policies on the types of items and transactions that may be
approved on a case-by-case basis. Thus, companies are likely to only
submit license applications for proposed transactions that may be
approved by the interagency process.
In the select instances where there is disagreement among the
agencies on whether to approve the license, there is an established
process for any agency to initiate further escalation and review.
During FY 2021, only 0.14 percent of all applications submitted were
appealed to the Assistant Secretary level. While the agencies may have
different perspectives on individual cases, we all bring helpful
expertise to the process and can reach accommodation on almost all
applications. And when we cannot, the interagency review and escalation
process forces us to bring our best arguments to the table to help
shape U.S. export control policy.
In addition to the Entity List, we also maintain the Unverified
List, which includes parties for which we cannot verify their bona
fides (i.e., legitimacy and reliability relating to the end use and end
user of items subject to the EAR). Earlier this year, we added 33
Chinese parties to the Unverified List as BIS was unable to verify
their bona fides because an end-use check could not be completed
satisfactorily for reasons outside the U.S. Government's control.
Because of this designation, no license exceptions can be used to
export to these parties, and BIS is imposing a pre-license check for
any license application involving these parties.
We know that the PRC is determined to advance its military
capabilities by illicitly acquiring U.S. technology. Our enforcement
team at BIS is dedicated to preventing this from happening by utilizing
all of our criminal and administrative investigative tools, as well as
regulatory actions like the Entity List and Unverified List, to
aggressively enforce our export control rules. For example, 21 percent
of the Office of Export Enforcement's current investigations involve
China as the ultimate destination. And in FY 2021, 66 percent of
criminal penalties and 40 percent of administrative penalties levied
related to export violations involving China, totaling almost $6
million, as well as resulting in 226 months of incarceration. In
addition to monetary penalties, we also have a powerful administrative
tool to deny export privileges. For example, in June, we imposed a
temporary denial order on three interrelated companies--Quicksilver
Manufacturing Inc., Rapid Cut LLC, and U.S. Prototype Inc.--that
contracted with U.S. defense and aerospace customers to 3-D print items
based off sensitive prototype space and defense technologies. The three
companies illegally sent the blueprints and technical drawings to China
to create 3-D prints, which were then shipped back to the United
States. BIS's action prevents these three companies from participating
in, or benefiting from, any export transaction while our investigation
continues.
China remains a complex challenge in the competition between
democracies and autocracies. We continue to assess the effectiveness of
our controls to address our national security and foreign policy
concerns related to the PRC and analyze whether the current threat
landscape requires new action. We are closely reviewing our approach to
China, seeking to maximize the effectiveness of our controls.
Identifying Emerging and Foundational Technologies Essential to
National Security
One such assessment is our continuous review to identify emerging
and foundational technologies essential to the national security of the
United States, as required under Section 1758 of ECRA. As many of you
know, this topic has attracted considerable attention, and for very
good reason. BIS works closely with our interagency colleagues to stay
informed on new technologies with national security implications and
determine whether we need to recalibrate controls on new or existing
technologies subject to our jurisdiction. Since enactment of ECRA, BIS
has established 38 new controls on emerging technologies, including
controls related to semiconductor production, biotechnology, and
quantum computing. All but one of these controls are multilateral, with
the one unilateral control pending multilateral agreement.
As part of interagency groups led by the National Security Council,
we have finished reviewing seven technology groups, which has
contributed to proposing and finalizing new controls. In many cases,
these reviews have also found that our current controls were sufficient
to capture emerging technology roadmaps. Where updates were needed, we
have prioritized updating and adding new controls. In addition, BIS has
identified technologies that were also identified through CFIUS filings
to propose potential controls on emerging and foundational
technologies.
We're also continuing to do more to involve parts of the Government
that are closer to the development and funding of new technologies. I
am working with the Department of Defense Under Secretaries for
Acquisition and Sustainment and for Research and Engineering to
establish a critical technologies review board. This board will help
BIS to understand the technologies DoD is investing in for military
use, and help us provide the appropriate controls for those
technologies.
We are also working to propose or implement new controls faster and
more efficiently. As part of a May 23, 2022, rule, we informed the
public that we would no longer characterize new controls as
corresponding to ``emerging'' technology or corresponding to
``foundational'' technology, instead referring to the technologies at
issue as ``Section 1758 technologies.'' As we noted in that rule, this
approach reflects the difficulties in drawing meaningful and functional
distinctions between technologies for purposes of fulfilling our
statutory obligations under Section 1758 of ECRA. Attempting to do so,
without statutory definitions for those terms, resulted in delays in
proposing and implementing new controls on such items because there is
no clear, consistent agreement within the Government and in the public
on how to apply the terms ``emerging'' and ``foundational'' to specific
technologies.
Attempting to characterize a technology as either ``emerging'' or
``foundational'' reduces our flexibility to respond to real-time
developments in rapidly changing technological landscapes. For example,
the marine toxins identified in our most recent proposed rule defy
common attempts to define ``emerging'' and ``foundational'' as these
toxins are naturally occurring items that are not new and have never
been on the Commerce Control List. Calling such items ``Section 1758
Technologies'' maximizes our flexibility and effectiveness. As Under
Secretary for Industry and Security, my fundamental principle is that
if there is a technology that could potentially harm our national
security (and is essential to our national security), we want to assess
it and if appropriate, impose controls on it--regardless of whether it
can be labeled ``emerging'' or ``foundational.''
While we will use the term ``Section 1758 Technologies'' going
forward, we will continue to review whether additional controls are
warranted for technologies that may be viewed as ``foundational,'' or
``emerging.'' We are statutorily required to do this. We are also
statutorily required to consider three criteria when identifying
emerging or foundational technologies: (i) the development of emerging
and foundational technologies in foreign countries; (ii) the effect
export controls may have on the development of such technologies in the
United States; and (iii) the effectiveness of export controls on
limiting the proliferation of emerging and foundational technologies to
foreign countries. Thus, imposing new, unilateral controls on a
technology that foreign suppliers can backfill or that a target country
already has would be ineffective and primarily undermine U.S.
development of such technologies. That is the key challenge with more
mature technologies and raises the importance of obtaining multilateral
or plurilateral controls for such items.
Multilateral Cooperation Essential to Our Security
That brings me to the final topic I want to discuss today:
furthering multilateral cooperation to more timely address national
security and foreign policy concerns.
Given the great work we have done with our partners with regards to
Russia, and given the threats posed by China--and other malicious
actors in the world--I believe we have been presented with a great
opportunity to further coordinate with our allies.
In all the export control policy areas I have described, it is
clear that cooperation with allies and partner countries is essential
to the effectiveness of these controls. To that end, we are involved in
working with various groups, including the European Union in the Trade
and Technology Council's Export Control Working Group and Japan in the
Japan-United States Commercial and Industrial Partnership. We are also
leading an export control effort in the Indo-Pacific Economic Framework
for Prosperity.
Additionally, we are working with colleagues across the interagency
to lead the multilateral Export Controls and Human Rights Initiative,
which we announced during the Summit for Democracy. Through this
effort, we are working with foreign Government partners to establish a
voluntary, written code of conduct around which like-minded States
could pledge to use export control tools to prevent the proliferation
of software and other technologies used to enable serious human rights
abuses.
We continue to monitor the effectiveness of the current
multilateral regimes and, when necessary, identify areas of
plurilateral cooperation in certain technologies with other supplier
countries. All four multilateral regimes maintain key controls in
restricting the proliferation of conventional arms, dual-use items, and
items related to WMD activities. In addition, to mitigate today's
threats, we must also work with like-minded Governments of supplier
countries of certain technologies of concern, including to identify
ways to use export controls to limit the use of technologies to commit
human rights abuses.
Finally, enforcement is critical to ensuring effective export
controls and we are working with partners across the globe on this
effort as well. We recently announced an enhanced export enforcement
partnership with Canada, and we are working with the European
Commission and its Member States on a similar coordination effort. Our
Export Control Officers around the globe are also working with
enforcement partners in countries stretching from Europe to East Asia,
including Singapore and the United Arab Emirates, to enhance export
control enforcement and prevent the diversion of U.S.-origin items.
Ultimately, for the United States to maintain effective export
controls and technology leadership, which itself is a part of our
national security, we need to work in cooperation with others. Our work
with the 37 other countries to implement the Russia controls helps
provide a blueprint for advancing further. We have momentum on export
controls that I will be working to carry forward as we build a new
technology security architecture.
We have a lot of work ahead of us on all of these fronts, and there
are many more areas where BIS is doing important work that I have not
discussed. I am proud to be serving in this critical moment, and I
value the partnership and collaboration with you and your staffs as we
tackle these challenges together.
Thank you again for the honor of inviting me here to testify today,
and I look forward to your questions.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM ALAN F. ESTEVEZ
Q.1. During the hearing on July 14, and at the House Foreign
Affairs Committee's hearing on July 19, members asked questions
regarding the recent transfer of certain munitions from the
U.S. Munitions List to the Commerce Control List. Though this
transfer of items occurred prior to your service at BIS, please
describe any changes to existing controls, licensing policies,
or enforcement authorities that resulted from the transfer.
Please also describe the process for reviewing license
applications related to these items, including consideration
given to potential end uses and end users, and any trends
related to license applications for these items.
A.1. Under prior Administrations, defense articles on the U.S.
Munitions List (USML) in the International Traffic in Arms
Regulations (ITAR) were transferred from the export control
jurisdiction of the Department of State to the Department of
Commerce if such items did not provide the United States with a
critical military or intelligence advantage or, in the case of
weapons, have an inherently military function, for export
control purposes. Within this process, the Department of State
and Department of Commerce published final rules on January 23,
2020, effective March 9, 2020, that revised USML Categories I
(firearms, close assault weapons and combat shotguns), II (guns
and armament), and III (ammunition/ordnance) and transferred
items that no longer warranted export control on the USML in
the ITAR to the Commerce Control List (CCL).
Following these changes, the Department of Commerce's
Bureau of Industry and Security (BIS) regulates exports of non-
fully automatic firearms up to .50 caliber (12.7mm) inclusive,
which includes semi-automatic, bolt-action, lever-action, pump-
action, single-shot and double rifles, pistols, and revolver
type firearms, ammunition, and related items, which are subject
to a worldwide license requirement by BIS for export from the
United States. BIS imposed additional restrictions on these
items when they transferred to Commerce jurisdiction, such as
restricting the use of license exceptions and imposing
restrictive license review policies on certain end users, such
as narcotics traffickers. Also, for those licenses approved,
the amount that may be exported is also limited by the
applicable import license/certificate restrictions of the
importing country. Since the transfer of jurisdiction, BIS has
further tightened restrictions, such as to address the concerns
over technology or software for 3D printing of firearms.
License applications for firearms exports under Commerce
jurisdiction are reviewed by Commerce, Defense and State to
address, among other things, human rights, and impacts to
regional stability with the potential exports. Assessments by
BIS Licensing Officers, as well as the other agencies that
review these license applications, are updated on a continuous
basis to respond to changes in specific countries, as well as
additional information that is received on the bona fides of
the parties identified in license applications, including ,
from the Watch List administered by the Department of State's
Directorate of Defense Trade Controls, diplomatic and other
reporting. Thus, the same agencies that reviewed license
applications for these items when they were on the USML
continue to do so today.
In addition to these front-end restrictions, BIS has Export
Enforcement agents--Federal law enforcement officers--whose
mission is to ensure that firearms exports are not diverted to
activities that violate U.S. law or would otherwise be contrary
to our national security or foreign policy interests. And BIS
makes arrests and works with our Justice Department partners to
seek indictments when appropriate. The addition of BIS
enforcement resources builds upon those previously available
when these items were on the USML in the ITAR.
Importantly, there are many approvals for licenses of
firearms exports to Government entities of allies and partners,
such as Ukraine in its defense of its sovereignty and
territorial integrity against Russian aggression, and it is in
our national security and foreign policy interests to support
the Ukrainian people. The largest by dollar value for firearms
exports under the Export Administration Regulations (EAR) is
Canada. For example, for calendar year 2021, BIS approved 278
firearms licenses valued at $347.6 million and 130 ammunition
licenses valued at $595.7 million. The amount of firearms
approved is based on a 4-year projection in many instances, so
the total number of actual firearms exported is lower. BIS
continually assesses its licensing policies, but always reviews
export license applications consistent with U.S. national
security and foreign policy interests.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM ALAN F. ESTEVEZ
Q.1. President Biden supports the reinstitution of a domestic
assault weapons ban, which would prohibit the manufacture,
sale, transfer, and importation of assault weapons and high-
capacity ammunition in the United States. If such a ban were
enacted, which of the 17 Export Control Classification Numbers
(ECCNs) that were created to control items moved from the
United States Munitions List (USML) Categories I-III to the
Commerce Control List (CCL) would be considered assault weapons
and high-capacity ammunition and therefore subject to the ban?
A.1. BIS interprets this question to refer to firearms
described in H.R. 1808, ``Assault Weapons Ban of 2022'', and
BIS believes this would apply to a subset of firearms described
in ECCN 0A501. Such firearms are currently subject to a
worldwide license requirement by BIS for export from the United
States. BIS also imposed additional restrictions on these items
when they transferred to Commerce jurisdiction, such as
restricting the use of license exceptions and imposing
restrictive license review policies on certain end users, such
as narcotics traffickers, and also has worked to address the
concerns over technology or software for 3D printing of
firearms.
License applications for firearms exports under Commerce
jurisdiction are reviewed by Commerce, Defense and State to
address, among other things, human rights, and impacts to
regional stability with the potential exports. Assessments by
BIS Licensing Officers, as well as the other agencies that
review these license applications, are updated on a continuous
basis to respond to changes in specific countries, as well as
additional information that is received on the bona fides of
the parties identified in license applications, including from
the Watch List administered by the Department of State's
Directorate of Defense Trade Controls, diplomatic and other
reporting Thus, the same agencies that reviewed license
applications for these items when they were on the USML
continue to do so today.
In addition to these front-end restrictions, BIS has Export
Enforcement agents--federal law enforcement officers--whose
mission is to ensure that firearms exports are not diverted to
activities that violate U.S. law or would otherwise be contrary
to our national security or foreign policy interests. And BIS
makes arrests and works with our Justice Department partners to
seek indictments when appropriate. The addition of BIS
enforcement resources builds upon those previously available
when these items were on the USML.
Q.2. When you appeared before the Committee on July 14, we
discussed aggregate data on the Commerce Department's approval
of export licenses for assault weapons and some other items,
and you committed to providing me with the exact dollar value
of approved export licenses for semiautomatic, or assault,
weapons since the
Commerce Department gained jurisdiction over these exports
in March 2020. Since March 2020, how many licenses for the
export of assault weapons and high-capacity ammunition (as
defined under Question 1) has the Commerce Department approved?
What is the dollar value of the export licenses for assault
weapons and high-capacity ammunition that Commerce has approved
since March 2020? What is Commerce's approval rate on export
license applications for assault weapons and high-capacity
ammunition since March 2020?
A.2. On January 23, 2020, the Department of Commerce, Bureau of
Industry and Security (BIS) published a final rule, effective
March 9, 2020, in conjunction with a Department of State final
rule to revise Categories I (firearms, close assault weapons,
and combat shotguns), II (guns and armaments), and III
(ammunition/ordnance) of the United States Munitions List
(USML) and transfer items that no longer warrant export control
on the USML in the International Traffic in Arms Regulations
(ITAR) to the Commerce Control List (CCL) (85 FR 4136, Jan. 23,
2020). Since this transfer of jurisdiction, through August 1,
2022, BIS has approved 13,867 applications valued at $10.06
billion dollars' worth of firearms, parts, and components
described in ECCN 0A501. The approval rate is over 98 percent,
the value of firearms and components denied was over 38 million
dollars. Note that ECCN 0A501 includes far more than just
semiautomatic firearms of which ``assault weapons'' as defined
in the referenced act would be a subset of these. Note also
that these applications are valid for 4 years and in many
instances involve projected sales which may be lower than what
is ever physically exported.
License applications for firearms exports under Commerce
jurisdiction are reviewed by Commerce, Defense and State to
address, among other things, human rights, and impacts to
regional stability with the potential exports. Assessments by
BIS Licensing Officers, as well as the other agencies that
review these license applications, are updated on a continuous
basis to respond to changes in specific countries, as well as
additional information that is received on the bona fides of
the parties identified in license applications, including from
the Watch List administered by the Department of State's
Directorate of Defense Trade Controls, diplomatic and other
reporting Thus, the same agencies that reviewed license
applications for these items when they were on the USML
continue to do so today.
Q.3. We also discussed concerns about the export of American-
made assault weapons to countries like Mexico, where corruption
puts these weapons in the hands of criminals, and the
Philippines, where reports have emerged of security forces
carrying out extrajudicial killings against civilians. To which
countries, and in what quantities (dollar value and license
number), has Commerce approved exports of assault weapons (as
defined under Question 1) since March 2020? To which countries,
and in what quantities (dollar value and license number), have
these weapons actually been exported since March 2020?
A.3. On January 23, 2020, the Department of Commerce, Bureau of
Industry and Security (BIS) published a final rule, effective
March 9, 2020, in conjunction with a Department of State final
rule to revise Categories I (firearms, close assault weapons,
and combat shotguns), II (guns and armaments), and III
(ammunition/ordnance) of the United States Munitions List
(USML) and transfer items that no longer warrant export control
on the USML in the International Traffic in Arms Regulations
(ITAR) to the Commerce Control List (CCL) (85 FR 4136, Jan. 23,
2020). BIS applications in general would not differentiate
between those types of firearms considered ``assault weapons''
in this legislation and other types of firearms in the same
caliber range because multiple types of firearms are all
included within ECCN 0A501. In calendar year 2021 for Mexico
there were 1,744 firearms shipped to Mexico, of these 790 were
pistols and revolvers and 954 were rifles of all types and
calibers of which ``assault rifles'' could possibly be a subset
of the 954. For the Philippines, in calendar year 2021 there
were 15,797 firearms shipped to the Philippines of these 15,130
were revolvers and pistols and 667 were rifles of all types and
calibers of which ``assault rifles'' could possibly be a subset
of the 667.
With respect to exports to Mexico, BIS also notes its
administration of the United States' commitment to the
Organization of American States (OAS) Model Regulations for the
Control of the International Movement of Firearms, their Parts
and Components and Munitions (OAS Model Regulations), which
were developed to assist OAS member countries to implement the
Inter-American Convention Against the Illicit Manufacturing of
and Trafficking in Firearms, Ammunition, Explosives, and Other
Related Materials (Firearms Convention). Pursuant to this, BIS
requires licenses for the export of specified firearms to OAS
members countries and requires the submission of an import
certificate from the recipient countries' Government prior to
the issuance of any such license.
Q.4. For each country listed in the answer to Question 4, what
percentage of exports went to Government agencies? What
percentage of exports went to nongovernment entities and
individuals?
A.4. For Mexico, all license applications for these items are
for export to the Government of Mexico, which then supplies the
items to specific parties. With respect to the Philippines, BIS
would have to do a manual review of all approved licenses to
determine the percentage that went to nongovernment entities
and individuals. All parties in license applications are
reviewed by Commerce, State, and Defense, including to review
for human rights concerns, regional stability concerns, or
potential risk of diversion to other parties of national
security or foreign policy concern.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM ALAN F. ESTEVEZ
Q.1. As you know, State-subsidized drone companies based in
China control over 90 percent of the U.S. and global markets
and have put many U.S. companies out of business. The largest
of those, DJI, is on the Entity list and Chinese Military
Industrial Complex Company (CMIC) list for supporting human
rights abuses and genocide in China. The Department of Defense
and some civilian agencies have also banned the use of DJI, and
other drones made by PRC companies, due to well-known national
security and cybersecurity concerns. And many in Congress are
working to ban their use governmentwide.
Do you agree with your predecessor's decisions to place DJI
on the Entity and CMIC List, and that they are a threat to
national security?
A.1. It is a matter of public record that DJI was added to the
Entity List in December 2020 by the Commerce Department, Bureau
of Industry and Security (BIS), after the usual interagency
review by the End-User Review Committee (ERC) made up of
representatives of the Departments of Commerce, State, Energy,
and Defense, and, where appropriate, the Treasury, because the
company ``enabled wide-scale human rights abuses within the
People's Republic of China through abusive genetic collection
and analysis or high-technology surveillance, and/or
facilitated the export of items by the PRC that aid repressive
regimes around the world, contrary to U.S. foreign policy
interests,'' as BIS stated in its December 18, 2020, rule. The
effect of DJI's addition to the Entity List is that the export,
reexport, or in-country transfer of any item subject to the
Export Administration Regulations (EAR) to DJI requires a
license from the Commerce Department. DJI remains on the Entity
List. DJI remains on the Entity List, and I have no reason to
second guess its placement on the Entity List.
Q.2. Will you commit to this Committee that you will advocate
that DJI stays on the Entity List?
A.2. BIS commits to continually monitoring parties on the
Entity List for activities that are contrary to the national
security and foreign policy interests of the United States.
Under the Export Administration Regulations (EAR), parties on
the Entity List may request Commerce to be removed. Removal
from the Entity List requires unanimous agreement of the End-
User Review Committee (ERC), made up of representatives of the
Commerce Department (Chair), Departments of Commerce, State,
Energy, and Defense, and, where appropriate, the Treasury. DJI
remains on the Entity List, and I have no reason to second
guess its placement on the Entity List. Consistent with
Executive Order (EO) 13918, it is the policy of the United
States to prevent to use of taxpayer dollars to procure UAS
that prevent unacceptable risks and are manufactured by, or
contain software or critical components from, foreign
adversaries and to encourage the use of domestically produced
unmanned aerial systems (UAS).
Q.3. What other authorities available to BIS can you consider
to protect the homeland from the threats posed by DJI and other
drones made by PRC companies?
A.3. BIS is continually assessing technologies, end uses, and
end users in developing appropriate export controls to protect
U.S. national security and foreign policy interests. BIS
possesses a variety of tools beyond the Entity List, such as
further restricting the licensing policy applicable to exports
under the Export Administration Regulations (EAR) to countries
or parties and transmitting ``Is Informed'' letters (i.e.,
letters to individual companies informing them of additional
license requirements related to specific parties and/or items).
When appropriate, these additional license requirements can be
imposed because of end-use or end-user concerns.
Additional Material Supplied for the Record
LETTER SUBMITTED BY THE BUREAU OF INDUSTRY AND SECURITY
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