[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                      REVIEWING THE BUREAU OF 
                    INDUSTRY AND SECURITY, PART I: 
                     U.S. EXPORT CONTROLS IN AN ERA 
                      OF STRATEGIC COMPETITION

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT AND 
                               ACCOUNTABILITY

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              May 11, 2023

                               __________

                           Serial No. 118-17

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
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                      COMMITTEE ON FOREIGN AFFAIRS

                   MICHAEL T. McCAUL, Texas, Chairman

CHRISTOPHER H. SMITH, New Jersey     	GREGORY MEEKS, New Yok, Ranking 
JOE WILSON, South Carolina               	Member
SCOTT PERRY, Pennsylvania	 	BRAD SHERMAN, California
DARRELL ISSA, California		GERALD E. CONNOLLY, Virginia
ANN WAGNER, Missouri			WILLIAM KEATING, Massachusetts
BRIAN MAST, Florida			DAVID CICILLINE, Rhode Island
KEN BUCK, Colorado			AMI BERA, California
TIM BURCHETT, Tennessee			JOAQUIN CASTRO, Texas
MARK E. GREEN, Tennessee		DINA TITUS, Nevada
ANDY BARR, Kentucky			TED LIEU, California
RONNY JACKSON, Texas			SUSAN WILD, Pennsylvania
YOUNG KIM, California			DEAN PHILLIPS, Minnesota
MARIA ELVIRA SALAZAR, Florida		COLIN ALLRED, Texas
BILL HUIZENGA, Michigan			ANDY KIM, New Jersey
AUMUA AMATA COLEMAN-RADEWAGEN,   	SARA JACOBS, California
  American Samoa			KATHY MANNING, North Carolina
FRENCH HILL, Arkansas			SHEILA CHERFILUS-MCCORMICK, 
WARREN DAVIDSON, Ohio			 	Florida	
JIM BAIRD, Indiana			GREG STANTON, Arizona
MICHAEL WALTZ, Florida			MADELEINE DEAN, Pennsylvania
THOMAS KEAN, JR., New Jersey		JARED MOSKOWITZ, Florida
MICHAEL LAWLER, New York		JONATHAN JACOBS, Illinois
CORY MILLS, Florida			SYDNEY KAMLAGER-DOVE, California
RICH MCCORMICK, Georgia			JIM COSTA, California
NATHANIEL MORAN, Texas			JASON CROW, Colorado
JOHN JAMES, Michigan			BRAD SCHNEIDER. Illinois
KEITH SELF, Texas  			   
                                    
                    Brenden Shields, Staff Director
                    Sophia Lafargue, Staff Director
                                 ------                                

              Subcommittee on Oversight and Accountability

                       BRIAN MAST, Florida, Chair

SCOTT PERRY, Pennsylvania            JASON CROW, Colorado, Ranking 
DARRELL ISSA, California                 Member
TIM BURCHETT, Tennessee		   DINA TITUS, Nevada
FRENCH HILL, Arkansas		   COLIN ALLRED, Texas
MICHAEL WALTZ, Florida		   ANDY KIM, New Jersey
CORY MILLS, Florida		   SHEILA CHERFILUS-McCORMICK,
NATHANIEL MORAN, Texas		      Florida				    
                                   MADELEINE DEAN, Pennsylvania

                       Ari Wisch, Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Nikakhtar, Honorable Nazak, Chair, National Security Practice, 
  Wiley Rein, LLP, Former Assistant Secretary for Industry and 
  Analysis, International Trade Administration, U.S. Department 
  of Commerce....................................................     8
Coonen, Steve, Former Senior Foreign Affairs Advisor, Defense 
  Technology Security Administration.............................    94
Wolf, Honorable Kevin, Partner, International Trade, Akin Gump 
  Strauss Hauer & Feld LLP, Senior Fellow, Center for Security 
  and Emerging Technology, Georgetown University, Former 
  Assistant Secretary of Commerce for Export Administration, U.S. 
  Department of Commerce.........................................    99
Cinelli, Giovanna M., National Security Fellow, National Security 
  Institute, Antonin Scalia Law School...........................   113

                                APPENDIX

Hearing Notice...................................................   128
Hearing Minutes..................................................   130
Hearing Attendance...............................................   131

            RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD

Responses to questions submitted for the record..................   132

 
  REVIEWING THE BUREAU OF INDUSTRY AND SECURITY, PART I: U.S. EXPORT 
              CONTROLS IN AN ERA OF STRATEGIC COMPETITION

                         Thursday, May 11, 2023

                          House of Representatives,
                      Subcommittee on Oversight and
                                    Accountability,
                      Committee on Foreign Affairs,
                                                    Washington, DC.

    The committee met, pursuant to notice, at 2:03 p.m., in 
room 210, House Visitor Center, Hon. Brian Mast (chairman of 
the subcommittee) presiding.
    Mr. Mast. The Subcommittee on Oversight and Accountability 
will come to order.
    The purpose of this hearing is to examine the Biden 
Administration's sanctions policy and its use, implementation, 
and enforcement of sanctions on a range of malign actors.
    I now recognize myself for an opening statement.
    So today the Subcommittee on Oversight and Accountability 
will begin examining the implementation and enforcement of U.S. 
export controls as a part of the committee's 90-day review of 
the Department of Commerce's Bureau of Industry and Security, 
or BIS.
    There is a lot of buzzwords being thrown around these days. 
We spoke about a lot of them in my office in the last couple of 
days. People like to talk about strategic competition. 
President Biden has used the phrases ``seeking competition not 
conflict,'' but I want to cut through some of the DC bull and 
say it is not competition if one boxer does not step into the 
ring.
    And it is completely, undeniably, 100 percent unacceptable 
that American soldiers, men and women like ourselves, may have 
to 1 day be forced to stare down the barrel of an American-made 
weapon because the Biden Administration has let the People's 
Republic of China get its hands on our tech.
    Members of this subcommittee on both sides of the dais have 
served our country in uniform honorably. We do not see eye to 
eye on every single policy issue, but I do know that we agree 
on this: when our men and women are staring down at enemy 
forces across the battlefield, our weapons and our will better 
be better than theirs. And there is no reason on God's green 
earth that we should be willing to be handing over our weapons 
to our enemy, or the means to build those weapons.
    I would like to begin today's hearing by comparing and 
contrasting Xi Jinping and Joe Biden's approach to the 
relationship between our two nations. Let's be clear that Xi 
Jinping is gearing up for a fight. He is preparing for conflict 
by being more competitive.
    Pictured behind me is the DF-17. It is the People's 
Liberation Army's first ground-launched hypersonic glide 
vehicle designed for anti-ship missions. China's State media 
referred to it as the aircraft carrier killer. Everybody should 
be asking themselves, whose aircraft carrier do you think this 
missile is designed to kill? What sailors do you think it is 
designed to end the lives of?
    Xi has told his military he wants the capability to attack 
Taiwan by 2027. He has told his generals to dare to fight. He 
is ready for a fight, and he is ready to do everything he can 
to make sure that China wins. That includes getting his hands 
on American tech using our supply to his advantage.
    I brought a few articles that illustrate this point. Let's 
read a couple of these headlines. The Washington Post on 
October 17, 2022, ``American Technology Boosts China's 
Hypersonic Missile Program.'' Washington Post again on April 9, 
2021, ``China Builds Advanced Weapon System Using American Ship 
Technology.'' The fact is that failure to stop transfer and 
espionage of critical American technology to the People's 
Republic of China has contributed to its rapid military 
modernization and the rapid decrease in the United States' 
national security.
    Let's put a finer point on it. The Chinese Communist Party 
is using American technology to build more precise, more lethal 
weapons, to sink our carriers and to kill our troops. That is 
Xi Jinping's plan. If Xi Jinping is gearing up for a fight, Joe 
Biden, in my opinion, is doing the opposite of that. He is 
desperate to appease the enemy, even if it means giving away 
our own military's advantage.
    Remember, we are not looking for a fight. That was the 
statement. We are looking for competition. But as the great 
General Patton said, ``Real Americans love to fight. They love 
the clash and the sting of battle.'' At the heart of his 
appeasement strategy, as Commerce's Bureau of Industry and 
Security, the agency's authority over export controls, its 
seeming refusal to use that authority, it is infuriating 
because I can sit here and say that, yes, China is in fact 
stealing our technology. But more concerning, the 
Administration is willing to hand it over to them, even in the 
midst of them being thieves.
    Let's look at the facts. During a 6-month period between 
November 2020 and April 2021, BIS approved 60 billion worth of 
licenses for American technology to Huawei, and 40 billion 
worth of licenses to SMIC. It has denied less than 1 percent of 
licenses to both companies. Ninety-eight percent of controlled 
technologies are transferred to China without license. Of the 1 
percent of exports that do need a license, only 2 percent of 
those licenses are denied.
    The Commerce Control List is more than 500 pages long, but 
it seems that every entity has a license exception. And even 
when a license is required, it is rubber-stamped and sent back 
out the door.
    We have laws and regulations that fill binders upon binders 
upon binders, and there is just some simple stacks of them that 
my staff has put together. But they are wasted words if we do 
not actually enforce them. Our ``yes'' has to be yes; our 
``no'' has to be no. Our adversaries have to take our country 
and our Administration seriously. It is because of, in my 
opinion, Joe Biden's refusal to lead through strength that that 
is not being done.
    While Xi Jinping is ready for a fight, President Biden is 
that guy with a quivering lip that will not look the bully in 
the eye and say, ``No. I am going to stand up to you. That is 
not going to be allowed. You are not going to do that.''
    So let's talk about how we fix this. The answer is actually 
implementing export controls in part. Congress gave the 
executive branch considerable authority in the Export Control 
Reform Act of 2018 to protect our national security, but the 
Biden Administration is failing to implement, and including 
blatant refusal to even define emerging and critical 
technologies as the law requires.
    It is ironic, really, that the Administration seems 
determined to overstep its authority in almost every case. But 
now that it has the ability to do something to keep Americans 
safe, it says, ``No, thanks.'' But that refusal to act is a 
slap in the face to those who sent us here to represent them.
    In March 2023, Morning Consult Poll found that one in two 
voters support restricting American companies from exporting to 
or do business in China when it comes to advancing their 
technologies. Some of our friends on K Street who lobby against 
tough export controls like to overcomplicate things. They make 
the system out to be more intimidating and confusing than it 
really is. But when I am back home, my constituents tend to 
keep things pretty simple. Don't sell American technology to an 
adversary that can be used to kill Americans.
    Today we are going to hear testimony from leading experts, 
including former Commerce and DoD officials. One of them ran 
BIS, another led DTSA's counter-China work until he resigned in 
protest. They will tell us firsthand how broken our export and 
control system is and where we can work to fix it together.
    This hearing is just a starting point for the 
subcommittee's oversight of BIS and its use of export controls. 
In coming months, we plan to invite BIS officials to testify 
and answer for these failures. Export controls are about 
ensuring America is taken seriously on the global stage.
    We cannot be the Nation of all talk and no action, of empty 
threats. Our actions have to match our words. Export controls 
are about national security. And as a soldier, when my brothers 
and sisters in arms are in that same position, I want them to 
know that their weapons can blow our enemies off the face of 
the earth and not have to worry that our enemies have the same 
capability to do that to them.
    Export controls are about beating China. I firmly believe 
that we have to run faster than our enemies, but we should not 
be working at all to give them any kind of capability to catch 
up. And China is ready for that fight.
    The chair now recognizes the very distinguished, the very 
honorable ranking member, the gentleman from Colorado, Mr. 
Crow, for any opening statement. And if it goes too long, I am 
certainly not going to gavel you down. That would be very 
hypocritical of me. So the chair now recognizes you.
    Mr. Crow. Thank you, Mr. Chairman, and thank you for the 
additional runway. I do not think I will need it, but I 
appreciate you calling this really important hearing today.
    Before I begin, I just wanted to note a little bit of my 
disappointment in two of the witnesses providing materials far 
past the required deadline when those materials by rule are 
normally allowed. It just makes it hard for members to prepare 
for the hearing, for staff to prepare for hearing, and for us 
to really get out of these hearings the full measure of our 
oversight, if we do not have those materials in advance, and 
would just ask that in future testimony for both of those 
witnesses that they do comply with that rule. And I appreciate 
that.
    So with that, today we are going to examine the Biden 
Administration's use of export controls and broader U.S. export 
control policy in the role of the Department of Commerce Bureau 
of Industry and Security, or BIS, in carrying out those 
policies.
    The U.S. economic might, if properly wielded through 
cooperation with our thriving private sector, as well as allies 
and partners, can serve as a multiplier for advancing U.S. 
national security and boosting our economic competitiveness in 
the face of strategic competition with the PRC.
    One of the most important ways we can wield that power is 
through the smart and effective imposition of export controls. 
Now export controls can be used to cutoff access to American 
products, intellectual property, and technologies that bad 
actors would use to undermine U.S. security, violate human 
rights, and circumvent international law.
    This is one way in which the U.S. Government can pull the 
economic levers at our disposal, and it is a tool the Biden 
Administration has used repeatedly and robustly, and arguably 
more than any previous Administration, and I would say to great 
effect.
    Now that is not to say they are perfect because the very 
nature of export controls is you are evolving, you are looking 
at data, you are responding to the information that you see in 
real time, and you continue to evolve those and improve those. 
They are by nature dynamic and changing.
    But the Biden Administration's use of export controls has 
been broad. It has been expansive and historic, particularly in 
countering China and Russia. In response to Russia's renewed 
invasion of Ukraine, the Administration swiftly built a 
coalition with 38 other countries, imposing stringent export 
controls on Russia and Belarus, the largest and most 
coordinated effort of its kind in history outside of the 
multilateral regime.
    In just over 2 years, it has listed hundreds of PRC-based 
entities, including through its October 2022 controls, which 
took unprecedented steps to restrict the PRC from obtaining 
advanced computing chips, developing and maintaining 
supercomputers, and manufacturing advanced semiconductors.
    Critical allies like Japan and the Netherlands have 
announced their plans to impose their own controls, a 
demonstration of the strength of U.S. leadership and welcome 
development to multilateralize our policies on China. Our 
controls are most effective when implemented alongside 
partners, and I hope today's discussion can shed light on how 
we can enhance international coordination on export controls.
    Today the U.S. uses export controls more often and for a 
greater number of policy objectives than ever before. That is 
just a fact. BIS adapts and strengthens its rules on an ongoing 
basis, as I mentioned earlier, responding and evolving as the 
conditions require.
    Similarly, it is important that Congress conduct oversight 
to ensure that our controls are calibrated to achieve our 
objectives and ensure they are not causing unintended 
consequences to U.S. interests.
    We are engaged in an economic and technological competition 
with the PRC, especially when it comes to critical technologies 
that will define the future. To win this competition, we need 
to do two things simultaneously with our controls. First, as 
the Biden Administration has done, we must not export sensitive 
and advanced critical technology to China that would undermine 
our national security. We all share that goal.
    Second, we must ensure that our controls are focused and 
narrow, so they are not unduly impeding our undermining our own 
U.S. economic strength and allowing our companies to become 
global leaders in these technologies. It is a delicate 
balancing act, but to win the strategic competition it is 
critical that we do both.
    This is why Congress must conduct honest, constructive 
oversight, and ensure that BIS has the tools and resources it 
needs to do its job effectively. Having imposed unprecedented 
controls on China and Russia in the past year Congress must 
ensure that BIS has the proper staffing and resources to 
effectively implement and enforce those controls as well as to 
maintain a swift, transparent, and rigorous licensing 
application and approval system.
    BIS's staffing and budget have, frankly, not kept up with 
the growing mandate that we have given it. For this reason, I 
hope this committee also gets the chance to hear from the 
Administration directly.
    So with that said, I hope we can spend some time today on 
productive oversight that highlights where BIS can improve, how 
we can strengthen coordination with partners and allies and 
export controls even further, and how we can give BIS the tools 
and resources it needs to enforce our already existing policies 
effectively.
    And with that, I yield back the balance of my time.
    Mr. Mast. We both went over. I will call it even.
    Other members of the committee are reminded that opening 
statements may be submitted for the record.
    We are pleased to have a distinguished panel of witnesses 
before us today on this important topic. We thank you all for 
being here. The Honorable Ms. Nazak Nikakhtar is the Chair of 
National Security Practice at Wiley Rein, LLP, and was the 
former Assistant Secretary for Industry and Analysis at the 
International Trade Administration. Mr. Steve Coonen was the 
former Senior Foreign Affairs Advisor for the Defense 
Technology Security Administration.
    The Honorable Kevin Wolf is a partner at Akin Gump Strauss 
Hauer & Feld LLP and a Senior fellow at the Center for Security 
and Emerging Technology at Georgetown University. Mr. Wolf was 
also the former Assistant Secretary of Commerce for Export 
Administration. And Ms. Giovanni Cinelli is a National Security 
Fellow at the National Security Institute at George Mason's 
Antonin Scalia Law School.
    Thank you for being here today. Your full statements will 
be made a part of the record, and I will ask that each of you 
keep your spoken remarks to 5 minutes exactly, like he and I 
both did, in order to allow time for member questions.
    I now recognize Ms. Nikakhtar for her opening statement.

    STATEMENT OF NAZAK NIKAKHTAR, CHAIR, NATIONAL SECURITY 
   PRACTICE, WILEY REIN, LLP, FORMER ASSISTANT SECRETARY FOR 
INDUSTRY AND ANALYSIS, INTERNATIONAL TRADE ADMINISTRATION, U.S. 
                     DEPARTMENT OF COMMERCE

    Ms. Nikakhtar. Chairman Mast, Ranking Member Crow, 
committee members and staff, thank you for the invitation and 
opportunity to speak today.
    As a lawyer, economist, former adjunct university 
professor, and former U.S. Government official, I have been on 
the front lines for the U.S. economic challenge for decades. I 
have served two tours in the U.S. Government, Department of 
Commerce, spanning four important positions, including Acting 
Undersecretary of BIS.
    I am also an immigrant, a woman who escaped an 
authoritarian regime nearly 45 years ago. I am acutely aware of 
what such regimes are capable of. They do not think like 
Americans. Capitalism is not in their interest. What they seek 
is the destruction of America and Western values. That is their 
end game above all else.
    It is from all of these vantage points as a patriot, an 
immigrant, and an expert that I offer my views today. The views 
and opinions expressed today are mine only and no organization 
with which I am affiliated.
    In my written testimony, I take the position that we need 
more forward-leaning policies to curb the exports of sensitive 
items to America's adversaries. I also take the position that 
Congress needs much more transparency in how exports are being 
regulated to better evaluate the ways that the Commerce 
Department is addressing very serious national security risks.
    I make the case that America was stronger 20 years ago, 
both in terms of economic resilience and in terms of military 
power, before it let its technology and manufacturing capacity 
move offshore to the PRC. The PRC, in turn, poured enormous 
amounts of money to indigenize and grow the innovations we 
willingly transferred to it. China also transferred our 
technologies to other adversaries for its own benefit and to 
our detriment.
    Now, America let its technology offshore because we 
mistakenly believed that we needed the revenue from the Chinese 
market to innovate. But the money received pales--pales in 
comparison to the value of the technology we transfer to China, 
coupled with the subsidies that the Chinese government used to 
mature these innovations and to powerhouse mammoth industries 
that span across China today and are crushing competitors 
globally. We lost; they won. And China is now leading the world 
in many of the important technologies.
    Make no mistake, in semiconductors--a very apt example--
China has developed the equipment, way for fabrication 
capabilities, the design technology, and the upstream supply 
chains, to dominate the global sector. Its immense control over 
the critical upstream supply chains also gives its leverage to 
destroy the chips sector of all other competitors.
    Let me be clear: China no longer needs us. With our 
technology, it can make both legacy and advanced chips and 
leading edge chips. As its throughput, is the 7 nanometer level 
great? No. But China can handle 30 percent yields because money 
isn't an issue for the Chinese government. Plus, the yields are 
going to improve over time.
    In comparison, we have neither the IP, the manufacturing 
capacity, to be self-sufficient across the full chip value 
chain. The reason, again, is that we chose to export our know-
how in exchange for money. So where does that leave us today? 
Desperate. Desperate for domestic manufacturing capacity, 
desperate for IP, and desperate for the manufacturing raw 
materials.
    This is a direct result of our sell-for-revenue export 
control policies. China has been running faster than us, and it 
is running exponentially faster the stronger it gets by means 
of our exports. We have a very short period of time to reverse 
the current trend, which means that we have to move in big ways 
to make up for last time.
    Finally, I want to note that tightening controls in the way 
I recommend will not force American companies to offshore. The 
Indo-Pacific region is becoming dangerously unstable 
geopolitically. Europe is dealing with historic energy prices 
that precludes long-term investments in energy-sensitive tech 
industries. And our other trading partners in Asia and South 
America do not have the skilled work force or the 
infrastructure to support high-tech manufacturing and R&D right 
now.
    To the extent that American companies offshore, they risk 
the possibility that their companies will be nationalized. 
China already controls a majority stake in all the American 
companies that offshored there years ago. If it controls the 
companies now, it is certainly going to nationalize them 
tomorrow. This is obvious.
    American is still the great beat to invest, which is why I 
find so many incredible patriotic companies looking now to 
innovate in the U.S. to outcompete our adversaries. Export 
controls, more aggressive export controls, will go a long way 
in giving these companies, these new startup companies, the 
runway they need to reclaim America's technological leadership.
    Thank you for having me, and I look forward to a discussion 
that is robust, guided by what is in America's best interest. 
Thank you.
    [The prepared statement of Ms. Nikakhtar follows:]

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Mast. Thank you, Ms. Nikakhtar. You nailed the time, so 
right on.
    I now recognize Mr. Coonen for his opening statement. We 
will see if you can do--if you can do any better on that front.

   STATEMENT OF STEVE COONEN, FORMER SENIOR FOREIGN AFFAIRS 
      ADVISOR, DEFENSE TECHNOLOGY SECURITY ADMINISTRATION

    Mr. Coonen. Thank you, Chairman Mast. Good afternoon, 
Ranking Member Crow and members of the committee. My name is 
Steve Coonen. It is an honor for me to be here to testify with 
you today.
    Following more than 2 decades in uniform as a U.S. Army 
artillery officer, and a foreign affairs officer, I spent 
nearly 14 years as an analyst at the Defense Technology 
Security Administration, or DTSA. That is the Pentagon's unit 
for developing export controls and technology security 
policies.
    By the end of my tour, I was DTSA's senior foreign advisor 
for China. In this position, I had the responsibility of 
preventing China from obtaining sensitive American 
technologies. In July 2020, the Office of the Secretary of 
Defense bestowed on me an award for excellence for my work on 
China. But then, in November 2021, I voluntarily resigned in 
protest from my position.
    I could no longer, in good conscience, continue to serve 
when I believe that too many officials refused to recognize and 
correct U.S. export policy failures concerning China. I felt 
like I was watching a car crash in slow motion every time the 
Federal Government approved a technology transfer that fed the 
buildup of an adversarial Chinese military and furthered their 
modernization efforts.
    Too few inside the system seemed willing to recognize this 
danger. I have submitted to you my written statement, which was 
also released yesterday by the China tech threat. My thesis is 
that willful blindness characterizes the various actors 
regulating technology sales to Chinese entities. Their refusal 
to stop China from legally capturing American technology 
undermines American national security and dishonors our forces' 
willingness to sacrifice for our country.
    At the center of the export control system is the Commerce 
Department's Bureau of Industry and Security, or BIS. In my 
view, BIS is failing to prioritize national security in its 
decisionmaking. BIS is grossly underestimating Xi Jinping's 
military-civil fusion strategy, which is diverting dual-use 
technologies to the People's Liberation Army.
    As evidenced in BIS's report on U.S. trade with China that 
was just released this week, in 2022 BIS approved 91 percent of 
applications with the export of controlled militarily useful 
technology to China. From my vantage point, the main problem is 
that BIS takes a business-first view of applications. Though 
there are scores of military uses for controlled technologies, 
BIS will rubberstamp applications unless they have specific 
indications or intelligence of diversion.
    The problem with this approach is it is obviously extremely 
difficult to obtain intelligence of PLA diversion. Even though 
we know it is happening, such as the case of China's 
hypersonics and using American technology to develop that 
control technology.
    Second, Xi Jinping himself has told us through his 
military-civil fusion strategy the CCP will divert any 
technology for military purposes. So we shouldn't need formal 
evidence of diversion. China's assertion that they will use 
this technology for civilian purposes are lies from a regime 
that is characterized by dishonesty and non-transparency.
    Third, unlike every other trading partner, the U.S. has no 
effective mechanism to verify how controlled U.S. technology 
exported to China is ultimately used.
    In close, we are failing to recognize significant and 
decades-long shortcomings associated with having a Federal 
bureaucracy whose inherent interests are not necessarily 
aligned with our national security interest. Given the length 
of time that these problems have endured over several 
Administrations--be it Republican or Democrat--I believe only 
Congress can implement the needed change.
    My paper offers eight specific directed suggestions, but in 
deference to time limitations I would urge you to quickly 
implement the following three recommendations to fix our broken 
export control system.
    First, make the presumption of denial the standard position 
for national security controlled technologies and other 
critical technologies bound for the PRC.
    Second, give the Departments of Defense, State, and Energy, 
greater authorities to determine the outcomes of a BIS-
dominated license process review. And enhance their ability to 
quickly add controls for emerging and unlicensed technologies 
for which they have the greatest equity.
    And then, third, request a GAO audit. I note a number of 
BIS process fellows in my paper. A GAO audit should be 
conducted immediately to assess the risk that those violations 
are causing to national security. That audit should also 
contain recommendations.
    I look forward to discussing these issues in greater detail 
with you. And, again, thank you for having me today.
    [The prepared statement of Mr. Coonen follows:]
    
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Mast. Thank you, Mr. Coonen. It was a good 7,000-word 
read, and I mean that.
    So I now recognize Mr. Wolf for his opening statement.

  STATEMENT OF KEVIN WOLF, PARTNER, INTERNATIONAL TRADE, AKIN 
   GUMP STRAUSS HAUER & FELD LLP, SENIOR FELLOW, CENTER FOR 
SECURITY AND EMERGING TECHNOLOGY, GEORGETOWN UNIVERSITY, FORMER 
ASSISTANT SECRETARY OF COMMERCE FOR EXPORT ADMINISTRATION, U.S. 
                     DEPARTMENT OF COMMERCE

    Mr. Wolf. Great. Chairman Mast, Ranking Member Crow, 
members of the subcommittee, thank you for asking me to 
testify. I am happy to help the subcommittee with its oversight 
role in any way that I can. The views I express today are my 
own.
    To help set the stage a little bit for the hearing, I 
thought it might be useful to list out some of the major and 
rather significant export control actions that BIS, working 
with its interagency partners, took in 2022.
    On the one hand, the changes are quite novel in that they 
focus on responding to, as the title of this hearing is, 
strategic national security threats created by specific 
countries, namely China and Russia, as opposed to the more 
classical country agnostic, non-proliferation-focused, regime-
based controls that govern the system and focused on dual use 
items since the end of the cold war.
    And these are the types of items historically that were 
controlled that had much more direct relationship to the 
development, production, or use of a weapon of mass destruction 
or conventional weapon, and the recent controls from 2022 are 
much broader in scope. They use a combination of really novel 
and quite complex end use, end user, and list-based controls, 
lists of specific items, and controls that are 
extraterritorial, meaning that they apply to foreign-made items 
even when they are outside the U.S.
    And another way of thinking about it is, even when 
otherwise basic commercial items that are not normally subject 
to U.S. or any non-U.S. controls are involved, the new controls 
that came about in 2022 apply to activities of U.S. persons and 
trade, an otherwise uncontrolled item with many more specific 
entities of concern in Russia and China and elsewhere.
    But on the other hand, the controls are not new in the 
sense that BIS, as mentioned, has always been to administer an 
interagency export control system and an enforcement system, 
which I want to get into, that governs the activities involving 
specific items, end uses, end users, and destinations, in order 
to advance national security and protect national security and 
foreign policy interests.
    The difference is that the national security and foreign 
policy objectives of export controls that were created at the 
end of the cold war have, and properly so, expanded to deal 
with the broader strategic issues that involve in particular 
China and Russia. And the evolution of this policy thinking is 
best set out by the Administration in two speeches that the 
National Security Advisor has given and in the preambles that 
BIS wrote for the two primary Russia and China-specific roles 
that are set out.
    And, in essence, with respect to export controls, the 
national security objectives clearly include broader China and 
Russia-specific strategic objectives with respect to what the 
National Security Advisor calls force multiplying technologies 
and enabling technologies.
    And as described in far more detail in other testimony that 
I have given, my view is that there are two keys to making 
these and other follow-on strategic controls far more effective 
and less counterproductive. And by ``more effective,'' I 
primarily mean coming up with rules and systems that stop the 
transfer of the technology of concern to end users and 
destinations of concern from any destination.
    And the first key to success in this objective is to do all 
the hard work to ensure that our allies that also make similar 
technologies, and that have producers of the items of concern, 
have the authority in their systems to impose controls over the 
same items for the same end use, the same end users, and same 
destinations.
    And so it is important that they have an understanding of a 
common security objective that we are all discussing today in 
order to enhance the effectiveness of controls.
    The thing that I have been preaching about is more 
authority for the allies, so that they can impose with us 
plurilateral controls, and eventually my ideal is a new--an 
additional multilateral regime system focus on non-classical 
national security and human rights issues.
    Now I am not saying that all unilateral controls are bad or 
counterproductive. It is just that as ECRA clearly lays out, 
eventually they become less effective and more 
counterproductive.
    And the second key that I will discuss today in much more 
detail is the need for massively larger resources for BIS. BIS 
and its other agencies are doing great work, but the demands of 
the day imposed upon BIS and the other export control agencies 
are far, far greater than what they were originally created 
for.
    BIS and the other agencies are processing 40,000-plus 
licenses and other requests in addition to all of the novel 
controls and issues, particularly with respect to enforcement 
of the Russia and China controls.
    So that is right at about my 5-minute mark, and I stand 
ready to answer whatever questions now or later, however I can 
help.
    So thank you very much.
    [The prepared statement of Mr. Wolf follows:]

    
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    Mr. Mast. I want to thank you, Mr. Wolf.
    I now recognize Ms. Cinelli for her opening statement.

  STATEMENT OF GIOVANNA M. CINELLI, NATIONAL SECURITY FELLOW, 
     NATIONAL SECURITY INSTITUTE, ANTONIN SCALIA LAW SCHOOL

    Ms. Cinelli. Thank you, Chairman Mast and Ranking Member 
Crow and distinguished members of the subcommittee. I very much 
appreciate the opportunity to come before you today to provide 
some perspectives from both a longstanding legal career where I 
have had to advise in this area from a client perspective to 
operationalize the requirements that the Export Administration 
regulations and the underlying statutes have imposed, and at 
the same time, from my military service as a U.S. Naval 
Intelligence Officer, where I have seen firsthand the actual 
impact of export controls out in the field and in a boots-on-
the-ground perspective.
    I am here today in my capacity as a National Security 
Fellow from the National Security Institute. The views that I 
am expressing are my own. They do not represent any individual 
or other organization.
    As my co-panelists have said, export controls are all about 
national security. And national security is predicated on both 
a proactive and a reactive strategy. If a national security 
foundation is predicated only on the ability to react to 
ongoing circumstances, that will place any country, not only 
the United States, in a defense posture and one in which you 
are almost shadowboxing because you are not sure where a 
particular issue will arise.
    So as we look at the export control system today, we see 
that the majority of what has been described by my co-panelists 
is focused on that reactive nature. As we look at 
effectiveness, and we look at the protection of U.S. national 
security interests, it would be helpful to look historically of 
where today's system originally arose.
    And I take it back to the 1970's when we had the first 
Export Administration Act that was predicated upon the 
geopolitical and geostrategic situation at that time. And at 
that time, it was effective. Why? Because it was premised 
primarily on a deny and delay concept, which matched where 
allies, partners, and the United States was at the time.
    There was a capability to deny access to parties, not just 
specific parties but parties more generally, and to also delay 
the advancement. That premise was coupled with an effective 
strategy by the Department of Defense in the maintenance of 
various lists like the militarily critical technologies list 
and the disruptive technologies list.
    And DTSA did yeoman's work up through the 1990's to attempt 
to maintain that list until a combined set of factors, not only 
resources but focus and changing balances within the government 
on who and under what circumstances made decisions in the 
national security realm.
    I think these lessons are important as you look at the work 
that the committee is considering doing as you understand where 
and how there may be gaps, and in some instances deficiencies, 
in the operationalization of the EAR.
    I think it stands on three legs of the stool. First, while 
export controls require flexibility, focus, and nimbleness, if 
the rules are so complicated and so convoluted that in order to 
implement them you need a technical person, an economist, and a 
lawyer, the question becomes, how are they best protecting 
interests?
    The second leg of the stool is funding. When the 
regulations and the underlying premise for export controls 
shifted in the 1990's from a deny and delay perspective to a 
Run Faster, there was an inherent need to maintain a degree of 
funding for the development of that delta to Run Faster. And at 
the time, in the Clinton Administration, while there was some 
aspect of a continuation of deny and delay, the transition to 
shifting almost everything to the Run Faster coalition resulted 
in gaps.
    Why? Because the funding was not there on the government 
side to keep the delta that had been in place. And on the 
industry side, and the academic community side, where there 
majority of the advancements were beginning to transition, the 
funding priorities, the focus, and the direction varied.
    This is not to say there were not circumstances when they 
were aligned, but they were not completely aligned, and you had 
different drivers. I fast-forward to 2018 with ECRA where 
Congress wisely reallocated a substantial substantive statute, 
in essence giving the Department of Commerce substantive 
authority for so many years.
    From 1994 through 2018, Commerce and the Export 
Administration regulations were premised on emergency powers 
under the International Emergency Economic Powers Act. That was 
not a sufficient authority.
    And with that, I see that my time is up. I am happy to 
answer any questions, and I apologize, Chairman Mast, for my 6 
minutes being over.
    [The prepared statement of Ms. Cinelli follows:]

    
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    Mr. Mast. I do not think--you went over by maybe 10 
seconds. You are good, ma'am. Thank you, Ms. Cinelli.
    I now recognize myself for 5 minutes of questioning. I am 
going to take a point of privilege and say we have in the 
audience the members of the Palm Beach Police Department that 
joined us here in our committee. I just want to say thank you 
all for your service to our community and our country. 
Appreciate you all very much.
    So I want to get into this conversation, a place that has 
interested me personally. Before I get into that, I want to ask 
more of a broad question, and it is simply this and I am going 
to ask Ms. Nikakhtar and Mr. Coonen, would you say that for 
Department of Commerce that they are primarily driven to 
enhance American commerce or to safeguard American national 
security interest? Just broadly.
    Ms. Nikakhtar. I am happy to answer that. I have served 
multiple different roles at the Commerce Department. Look, the 
Commerce Department is bifurcated, right? You have got the pro-
business group, and that is pretty much the majority of the 
Commerce Department. But you do have already a unit of the 
Commerce Department that handles enforcement of trade cases, 
and they do that pretty well.
    Within BIS, you have the enforcement group. They are very 
forward-leaning. They are very enforcement-minded. And then you 
have got the licensing folks, which are a little bit less so.
    Fundamentally, one can have the debate about whether 
Commerce is capable of doing this. What I think needs to happen 
at BIS is a complete culture shift on the licensing side. They 
need to see the threats for what it is, and they need to really 
understand that, you know, continuing to do business with China 
and the revenue stream we get from them is not going to be the 
ticket out of this mess.
    We have decades of evidence to show that that strategy has 
failed. Fundamentally, I think Commerce can do both, but we 
need a culture shift.
    Mr. Mast. I think that is an important term, 
``fundamentally.'' And it takes me to what I really wanted to 
ask about, and that is fundamental research as it relates to 
what we are allowing China and others to learn. There is an old 
saying, right, you give a man a fish, you feed him for a day; 
you teach him to fish, you feed him for life.
    And you could almost say that we are helping to grow them 
and feed them for life with what we are doing, so for any of 
you, I would love to hear analysis on what needs to be changed 
with the fundamental research exception, what controls need to 
be updated on that. Should companies on the entity list be able 
to participate in fundamental research? Where are some of the 
places that you have seen this play out in generating problems 
for the United States of America? Maybe some other questions in 
there. How big of a risk does the CCP penetration of university 
research programs pose to the United States of America?
    And if you all could touch on that, I think it would be 
very worthwhile information for us to hear.
    Ms. Nikakhtar. I am happy again to start on it, since I 
have written about it in my testimony.
    Mr. Mast. Let's let Mr. Coonen start a minute. We like to 
share the wealth a little bit.
    Mr. Coonen. Sir, I would--just jumping back to your other 
question, I think it is important to note--to answer your 
question of whether Commerce is focused on commercial interests 
over national security interests. I think for an export control 
system to be effective, it needs to be predictable. And so for 
all of our partners and allies, I would suggest that we do have 
a very predictable system in that they are able to get the 
capabilities they need.
    I think where that line starts to shift from a business 
perspective to the national security, where we need to focus 
more on the national security perspective, at least within BIS, 
is when we start to talk about our adversaries. And there I 
think they haven't made that shift. That has evolved over time 
where initially we were more open and welcoming to the People's 
Republic of China, but now there is--it is an obvious threat, 
and it seems as though that mentality, that fundamental shift, 
has not occurred yet for--to focus from a business perspective 
to a more national security--to defend our national security 
interest.
    Thank you.
    Mr. Mast. No. I appreciate that. Does anybody care to touch 
on fundamental research and our universities?
    Ms. Nikakhtar. So I will add that----
    Mr. Mast. Ms. Nikakhtar, please?
    Ms. Nikakhtar. Yes. I will add--our universities are--we 
have got China's Thousand Talent programs. We have got similar 
programs in other countries. The technology that is already 
controlled isn't controlled when it is kind of called 
fundamental research. You do some basic research, advanced 
research from that, and then if you intend to publish, it 
essentially falls out of the scope of controls.
    Why not take every single thing on the Commerce Control 
List right now and just tell the universities for foreign 
countries of concern--we do not need to do it broadly--foreign 
countries of concern, no more fundamental research exception. 
Even if you intend to publish, you need to get a license from 
BIS before you do that, or whatever entity ends up handling 
export controls on dual use items.
    Mr. Mast. I would love to ask more about that, but my time 
has expired. I now recognize Ranking Member Crow for 5 minutes.
    Mr. Crow. Thank you, Mr. Chairman. I just wanted to pick up 
on this line of questioning about this theme that, you know, 
Commerce Department is somehow ill-equipped to handle issues of 
national security and kind of that general thrust.
    You know, I sit on the Intelligence Committee. I have sat 
on the Armed Services Committee. And what I see is a rapidly 
evolving landscape where more and more of our defense 
procurement and acquisition, and more and more of the new 
technologies that are being fielded, are COTS, or commercial 
off the shelf. That is kind of the future of a lot of defense 
acquisition because it is cheaper; it is more rapidly fielded; 
it is more attritable.
    So, Mr. Wolf, I would like to just kind of hear from you 
your views. You have been in BIS. You have been in private 
practice. Your career has straddled both public and private for 
many decades. What is your view as to that trend, and Commerce 
Department, their ability to fully understand the national 
security impact and balance those equities between private 
innovation and commercial off-the-shelf technology, but also 
the best interests of U.S. national security?
    Mr. Wolf. Yes. The mission of BIS when I was there, when 
Nazak was there, now, and before, is to advance and protect our 
national security interests. I do not think there is any doubt 
about that. It administers an interagency system involving 
subject matter experts from Defense, State, Energy, and 
occasionally others, to get input into both identifying what 
the threats are and making decisions on individual 
transactions.
    With respect to the core point of your question, and as 
Giovanna, you know, basically was alluding to, the national 
security landscape and the national security objectives of 
controls have evolved considerably. During the cold war, they 
had a much broader strategic objective.
    After the cold war, they became much more narrowly focused 
on items that were more specific to non-proliferation 
objectives, and they were focused through a regime-based system 
of four multilateral organizations that identified items that 
had a much more direct relationship to the development, 
production, and use of weapons. And it was easier to tell the 
difference between a civil and a commercial and a military 
application in the earlier days.
    All of those things have been evolving and change. The 
national security threat landscape with respect to China has 
become far more complicated, similarly, with respect to Russia 
and other countries. Identifying specific types of items that 
used to be the foundation of an export control system is not 
always as effective when the underlying activity of concern is 
with respect to a widely available commercial item. 
Particularly, for example, on human rights abuses, use widely 
available commercial items, and some of the modernization of 
advanced military systems fundamentally depend upon things that 
are widely available commercially and were created civilly.
    And so that is why, as the title of this hearing indicates, 
and the objective of the rules that came out in 2022, focus 
much broader on broader strategic objectives and a greater use 
of controls over activities of individual persons when the 
underlying item is not controlled, and controls over 
transactions with specific end users of concern.
    And all of this added complexity, the novel technologies, 
the greater number of countries involved, the more bilateral 
relationships, the weaknesses of the regime system, 
particularly since Russia is a member of three of the four and 
has effectively a veto over progress in those, requires I think 
fundamentally a new way of thinking about the way we work with 
our allies and our allies realize a common security threat in 
order to address the issues that we are all discussing today.
    And that requires a lot more resources. It is far more 
complex to do what I just described with a lot more time, a lot 
more briefing papers, a lot more meetings, a lot more 
analytical skills and technical skills than was the case in the 
1990's when the current system was created. And I lay out the 
details in my commentary about why I think radically more 
resources are needed for BIS and their sister agencies.
    Mr. Crow. Thank you, Mr. Wolf. In less than a minute, I 
also wanted to take the opportunity and correct the record 
regarding an earlier assertion about the nature of licenses and 
exceptions to Huawei. There was a comment made that the Biden 
Administration has somehow been weak in Huawei. But isn't it 
true that it was actually the prior Administration that granted 
licenses and exceptions at Huawei, and that since the Biden 
Administration has come in they have actually tightened the 
rules around Huawei?
    Mr. Wolf. Yes. Historically, before Huawei, it was 
generally a denial for listed entities, and I am unaware of any 
approvals. When I was assistant secretary, there may have been 
some, but I do not know of any. And Huawei was the first 
principal case where there was a policy of granting licenses to 
a listed entity, and that started in I think August or 
September 2019, was formalized in August 2020, and there is a 
Reuters article today, a story about a potential apparent plan 
to change that August 2020 policy. So, yes.
    Mr. Crow. Thank you. My time is out. I yield back.
    Mr. Mast. Thank you, Ranking Member Crow.
    The chair now recognizes Mr. Perry for 5 minutes.
    Mr. Perry. Thank you, Mr. Chairman.
    Ms. Nikakhtar, just under the China policy, corporations I 
think if China--if the CCP demands it--are required to share 
information with the party on technology. Is that correct?
    Ms. Nikakhtar. That is absolutely correct.
    Mr. Perry. Yes. So I think it is safe to say that the CCP 
gets their hands on any technology they want, if it has come 
from America, or anywhere else for that matter, into the hands 
of a Chinese corporation. If they want it, they are getting it.
    Ms. Nikakhtar. If it goes to a seemingly innocuous 
corporation, the CCP will get its hands on it if it wants it.
    Mr. Perry. So according to BIS's most recent data, fewer 
than 1 percent--fewer than 1 percent of U.S. exports require a 
license, and of that less than 1 percent, 98 percent of those 
applications are approved. Is that close? Is that correct?
    Ms. Nikakhtar. It is astounding. When you are looking at 
this narrow subset of what is on the Commerce Control List, and 
then--and you narrow it down with all the exemptions. You 
narrow it down with what does not require a license.
    And then within that you are looking at 90-plus percent 
approval rate and very little denial rate for items that are 
dual use, ``dual use'' meaning, yes, it has commercial 
applications, but it also has military applications. Every item 
on the Commerce Control List is dual use. That is what we are 
licensing to an adversary that is threatening to harm the 
United States and our allies.
    Mr. Perry. So we are not really stopping any--I mean, 
appreciably--it is less than 1 percent, right? It is--we are 
not really stopping any technology in a meaningful sort of 
getting into the CCP.
    Now, entities on the entity list are typically subject to a 
presumption of denial licensing policy. Do you think that BIS 
is faithfully implementing that when it approves 98 percent of 
license applications? Do you think they are following that, or 
is there some reason that it--look, it sounds astounding to me. 
What are we missing here?
    Ms. Nikakhtar. I mean, it is pretty horrific that when you 
look at the entity list you have--out of the approximately 473 
Chinese companies on the entity list, if you take into account 
the affiliates, 81 percent of them have licensing policies that 
have a case-by-case license review mechanism, which for all 
intents and purposes-minus a little bit of details--essentially 
removes them from the entity list.
    I mean, what are we doing? These guys are put on the entity 
list and then get treatment from somebody that is not on the 
entity list. It is absurd.
    Mr. Perry. So I am looking at the two things here. You said 
in your testimony that we need to move in big ways, but I do 
not think--I was listening to see if you were going to 
elaborate on that.
    And then in your testimony you talk about BIS being more 
transparent with the process I guess, so that we and the 
American people can see how they are approving things. Can you 
speak to the--if nothing else, the ``move in big ways''? We get 
the transparency thing. Can you give us like two or three--what 
are the big moves?
    Ms. Nikakhtar. Yes. Absolutely. So, look, it is a really 
low threshold to be on the entity list, right? And so we should 
be designating many, many more companies. The fact that around 
473 of the entire Chinese industry, Chinese military complex, 
is absurd. We need to be designating more. Don't fear 
litigation. Defend the actions of the right in the interest of 
national security.
    Also, we are not adequately designating subsidiaries and 
affiliates. I have worked trade. I have the unique ability to 
know everything in the trade laws--trade laws that have been 
held by the highest courts of the country and are WTO 
consistent. Why are we not applying those laws, those 
regulations, that legal framework, to determining affiliation?
    So a business that has close business ties with Huawei, 
right, like a company like Honor, that in the trade world would 
be deemed to be affiliated. We need to do the same for the 
entity list. And BIS is going to complain about the burden. We 
do not need BIS to designate every single affiliate. BIS issues 
regulations that say its affiliates are now on the entity list. 
Industry, do your own due diligence. And if you cannot do your 
own due diligence, then do not export because the risk is too 
high.
    Mr. Perry. Okay. I am going to run out of time. Mr. Coonen, 
at some point if you could comment on the presumption of denial 
that you talked about, but I want to--I want to get Ms. Cinelli 
right now.
    CFIUS. In the 20 seconds I have left, broadly speaking, I 
feel like it is just not--I feel like it is not efficient, 
effective at all. Am I wrong or what needs to be done there, or 
am I completely in the woods on that?
    Ms. Cinelli. So I think I would call your question 
insightful. Any regulatory construct has deficiencies in it. 
Now, CFIUS--and I am going to tie it to the export laws because 
through the Foreign Investment Risk Review Modernization Act of 
2018 and ECRA, the Export Control Reform Act of 2018, for the 
first time there was a direct tie, sir, between export controls 
and CFIUS.
    So, in one sense, it was designed to bring a national 
security overview that would grant CFIUS additional reach into 
different transactions, but at the same time it acted like 
limitation. And what happens is these limitations come in, 
Congress proposes through legislation objectives to be met, but 
the executive branch is left with the interpretive capability 
to assess how that is implemented.
    And absent consistent oversight--and Congress is incredibly 
busy and these are, as all my co-panelists have said, dense 
regulations and incredibly complicated, it allows the 
opportunity for too many things sometimes to slip through the 
cracks.
    And with CFIUS, just as with export controls, the systems 
are set up to be porous. And that is why considering different 
approaches sometimes to managing CFIUS and managing export 
controls, to keep it proactive as well as reactive, becomes an 
essential issue to continuously monitor.
    Mr. Perry. Thank you for your indulgence, Chairman.
    Mr. Mast. The chair now recognizes Ms. Titus for 5 minutes.
    Ms. Titus. Thank you, Mr. Chairman. I would ask Ms. 
Cinelli, I appreciate your impressive resume, which you have 
told us about several times, but I think your results are 
spurious when you talk about 98 percent being accepted. We know 
that the regulations are long and in-depth, but we also know 
that they are constantly being updated. They are published. 
They--I am sorry?
    Mr. Crow. Ms. Nikakhtar is----
    Ms. Titus. Oh. I am sorry. I am looking at the right person 
and saying the wrong name. Excuse me. I am looking at you. They 
are constantly updated. They outline what items are available, 
which ones are allowed, what end uses are allowed, which ones 
are prohibited. So why would businesses take a lot of time, 
money, effort, and personnel to apply for something when they 
know it is not going to be approved? I do not think they do, 
but that is my opinion of the research.
    I would ask Mr. Wolf some questions. You say that there are 
two things that we need to do, and you outline them in your 
report. But I would like for you to talk about them a little 
more here, and they are commonsense things, things--our 
regulations aren't going to work very effectively if they are 
just unilateral. We need to have more of a multilateral 
approach.
    We have seen a little of that with Japan and the 
Netherlands. What about Australia? Could we--what can we do to 
encourage other nations to have that approach with us?
    Second, we need to put more resources into the effort. We 
need more technical, analytical resources, because the world 
has become more complex. How do we do that? Do we need to 
designate perhaps an international coordinator, or someone that 
has a higher level position to oversee this?
    And then the third thing I would just ask is, what about--
we talk about a carrot and a stick. What about things like the 
CHIP Act where we encourage development or manufacturing here, 
but we put restrictions on it, so that we do not get into this 
export problem that concerns our--both commercial and national 
security interests?
    Mr. Wolf. No. Great question. Thanks for the comments. And, 
yes, it is generally the case. I am a practitioner. I help 
people comply with the regulations. And when I tell them the 
license isn't going to be granted because of the policy and the 
regulations, they generally do not bother applying. It is not 
worth the time.
    Sometimes they do in order to get the denial for other 
reasons, but that is why the statistics are like they are. It 
is the same thing at the State Department where the vast 
majority are approved. Same thing at CFIUS. The vast majority 
are approved. People do not make submissions for outcomes they 
know are going to be negative.
    If you do not like the policy and the regulation of 
approval, then focus on that. But the percentages aren't really 
the way to think about it that way.
    My principal advocacy with respect to making the rules more 
effective is that the Congress should work closely with the 
Administration at--working with the allies better to articulate 
a significantly expanded vision for the role and purpose and 
scope of export controls far beyond the more narrow, non-
proliferation focus of the post-cold war era.
    And, in particular, I think that a coherent vision of 
government coming together to say that export controls should 
be used not only for items of classical non-proliferation 
concerns but also for the broader strategic issues that we are 
all discussing today, that there needs to be the authority in 
each of the allies to impose controls outside of the regimes 
and not limited to the post-cold war regimes, which each--three 
of the four give Russia a veto, that there should be a 
multilateral organization and structure, at least agreement 
among the allies, to control items for human rights abuses. 
That does not exist at all.
    And the allies just, frankly, need help on capacity-
building on enforcement. The U.S. is largely unique in its 
enforcement resources, and particularly with respect to Russia 
to make the controls more effective. We need coordination and 
cooperation of allies, and there needs to be much more 
intragovernmental coordination between allied country licensing 
and policy, as well as their enforcement resources.
    With respect to Australia, I am a big advocate for 
substantial changes to the international traffic in arms 
regulations with respect to implementing AUKUS. There is 
legislation out there--the TORPEDO Act, which I have read which 
seems terrific, and it is basically what we tried to do when I 
was in government with respect to the export control reform 
effort in order to allow the government to spend more time 
focusing on countries of concern, reduce the burden on trade by 
and among and between close allies, so long as there were 
sufficient protections in place. And AUKUS is the way to do it.
    With respect to your somebody to focus on this, this is 
incredibly complicated work working with the allies. Diplomacy 
takes time and it is hard, and the allies have very different 
views, depending upon the country and the agency about thinking 
about export controls differently. And it requires a 
significant amount of resources and expertise in State, 
Commerce, the other agencies, to work with the allies to come 
to what I believe requires a fundamentally new and expanded 
thinking about the role of export controls.
    And then my last comment is that there should be a specific 
office within the Commerce Department to evaluate the 
effectiveness and the impact of all these rules. The Treasury 
Department has recently created an office to do this with 
respect to sanctions, and surprisingly there isn't anything 
like that at the Commerce Department.
    And we would really--it is a lot of decisions based upon 
gut and anecdote and partial data, but no major system to 
collect data and organize it and analyze it to know the impact 
and what more can be done.
    So I have got a long list of recommendations and ideas, but 
those are ones that I think are directly responsive to your 
comments. Thank you for asking.
    Ms. Titus. Thank you, Mr. Chairman.
    Mr. Mast. Thank you, Ms. Titus.
    The chair now recognizes Mr. Mills for 5 minutes.
    Mr. Mills. Thank you, Mr. Chairman. I wanted to ask a 
question. With the war in Ukraine, you are seeing the use of 
U.S. technology being used in Iranian drones that has surfaced 
as a major problem. And Russia is now using these Iranian 
drones with deadly effect in Ukraine against the civilians.
    How can we address the specific problem of low level 
technology that is widely available being exported to Iran 
through the use of drones? And I will start with you, Ms. 
Nikakhtar.
    Ms. Nikakhtar. One of the issues we have in the Export 
Administration Regulations is this lack of a See-Through rule, 
right? And so if you have technology that is embedded in 
something else, and if it does not meet this de minimis 
standard, then it really does not require a license. And that 
is how a lot of the things that we are getting to China is 
flowing to our adversaries.
    Now, if items aren't controlled, right, we need to 
potentially--it is a really great question. We need to 
potentially really look at what that technology might be 
capable of, even if it is not controlled. Of course advocate 
for controls, and then really think about whether we want to 
put policies in place specifically for China, knowing that 
China has this massive--you all do not need me to tell you 
this, but China has a massive history of diversion, right? A 
diversion, where everything you send to it essentially goes to 
some malign actor. You can bet on it.
    So it is a broad solution. But depending on whether it is 
controlled or not, we can legally impose restrictions on what 
is going there.
    Thank you.
    Mr. Mills. Thank you so much. And, yes, I absolutely agree. 
I mean, especially as we look at the geopolitical alliances 
that have been forming over time with Russia, China, Iran, and 
North Korea, knowing that they are sharing and utilizing 
technology in an effort to launch an economic resource warfare, 
not just kinetic, but utilizing different technologies in 
advancement of this, to try and help with the economic 
advancement and in some cases coercion of many of those to 
advance the Belt and Road Initiative.
    This same question--staying on topic--I would like to ask 
you as well, Mr. Coonen.
    Mr. Coonen. Yes, sir. I think another important element of 
the problem that we have is China is probably one of their 
major suppliers, in that the end use checks agreement that we 
have between the U.S. and China is largely inadequate, if not 
totally inadequate. We only have one export control officer to 
do the verification.
    So if we want to followup on any export to China after it 
has been made--and it is unique to China as we--it is not like 
this with any of our other trading partners. So they only have 
one export control officer on mainland China to do any post-
shipment verification checks.
    When I did a research paper on this for the Secretary of 
Defense, they were averaging 55 checks per year. I think it has 
even gone down because they were refusing them last year until 
we put them on the unverified list and then moved them over to 
the entity list, which was a good thing, but it just shows how 
difficult that problem is.
    So there is no mechanism in place to ultimately check where 
the--who is the ultimate end user. So it invites diversion to--
internally within China or to North Korea or to--in the case 
that you just offered, Iran.
    Ms. Nikakhtar. May I add a point? It is----
    Mr. Mills. Yes, please.
    Ms. Nikakhtar [continuing]. A really important point, and I 
want to tease it out, and something I want this committee to 
know. The end use checks in China are authorized by MOFCOM. 
When I was at the International Trade Administration at the 
Commerce Department, it is MOFCOM who also allows our trade 
checks to ensure compliance. MOFCOM allowed me to go into a 
company for 3 weeks and unearth anything I could to make sure 
that there was no trade violation.
    And I can tell you that I still hold the record at the 
Commerce Department for failing every Chinese company I ever 
audited, because I always found the smoking gun, and none of 
that was ever litigated.
    But going back to the main point, MOFCOM restricts BIS's 
end use checks. Half the day they can barely look at anything. 
A MOFCOM official has to be there, and we are saying--and then 
we were just talking about how much China is responsible for 
diversion.
    Mr. Wolf says we need to give BIS more money. Okay. Maybe I 
can see some arguments for that having merit. But you give the 
end use check people more money, there are not--how many people 
do you think you can put in China, even if you had one person 
at every single company, there is no way they could find all 
the ways that China--and they are very sneaky--misuse and 
divert and exploit our expert control rules.
    So let's be pragmatic and realistic about this. No matter 
how many people you put there, we are not going to catch what 
they are doing.
    Mr. Mills. And in my last 20-plus seconds, I want to stay 
with you on this, Ms. Nikakhtar. The de minimis rule threshold 
for China is 25 percent, substantially higher than the other 
adversaries like Iran, North Korea, Cuba, and those I had 
mentioned previously. What does that mean, and what should it 
be?
    Ms. Nikakhtar. It basically means that you can just--you 
know, you take a gaming computer with exquisite semiconductor 
chips, you send that to China, no license. China sends it to 
Russia. They take all of it out, right? It is absurd. It is 
absurd we are doing.
    China is not like other countries, right? China is a 
foreign adversary. We really need our rules to reflect that. I 
would take it down. Like I said, I would also add the See-
Through rule. Look, I will be frank, I do not want to export 
anything sensitive to China, or anything for that matter, to a 
genocidal regime that is also threatening to harm the United 
States and our allies.
    Personally, I would take it all the way down to zero. I do 
not want anything to get into China, any way, shape, or form.
    Mr. Mills. You are definitely one of my favorite panelists 
so far.
    With that, I yield back, Mr. Chair.
    Mr. Mast. Thank you, Mr. Mills.
    The chair now recognizes Ms. Dean for 5 minutes.
    Ms. Dean. Thank you, Chairman Mast and Ranking Member Crow. 
And thank you to our witnesses for being here today and 
testifying and offering us your expertise and your passion 
around these issues.
    I just want to backtrack a little on something that was 
just discussed in terms of Russia deploying Iranian-made 
unmanned aerial vehicles in Ukraine, discovered in September 
2022.
    Assistant Secretary Wolf, isn't it true that the Biden 
Administration established a task force to investigate that, 
and then I believe promulgated a rule to target Iran's supply 
to Russia? Could you just confirm or tell me----
    Mr. Wolf. Yes. Absolutely. So a couple of months ago a rule 
was published using something called the Foreign Direct Product 
Rule, foreign-made items made with U.S. technology or equipment 
going into items destined to Iran or for use in a UAV for 
Russia, even though not from the U.S. and not U.S. origin 
content, are now subject to U.S. export controls as a result of 
a new rule to address that exact point.
    There is, you know, a massive increase in resources to 
track down diversion and distributors and third parties 
involved in chips and other items making their way into such 
items, into Russia, and so--yes, I will stop there.
    Ms. Dean. Thank you very much. I wanted to followup, Mr. 
Wolf, on the ending of your testimony. And I read in your 
testimony that you were surprised to see the BIS Fiscal Year 
2024 budget for export control policy and enforcement efforts 
remaining flat.
    You go on to say, ``Everyone agrees that BIS and export 
controls are central to strategic and classical national 
security and foreign policy objectives. BIS's budget should 
reflect that position and be equally serious.''
    So what are some of the specific areas where you think BIS 
could urgently use some additional funding, staffing, and 
expertise?
    Mr. Wolf. Thank you for noticing. So, you know, compliments 
to the previous Administration for substantial increases in the 
BIS budget, since when I was there I--I do not know the story 
behind the budget. Just in reading it, I saw it is flat.
    And for everybody calling for more activity and more 
controls and more research and more analysts, there should be 
an equally large number of people adding to the ranks of BIS 
and to the other export control agencies. Defense Technology 
Security Administration, State Department's ISN and DDTC, and 
the Department of Energy's NNSA require equal attention as 
well.
    So you need more people doing data analytics. The rules are 
far more complex and the diversion potential higher. You need 
dramatically more enforcement resources to followup on leads 
and track down and work with the allies with every new country 
and every new bilateral issue, and this idea that I have about 
substantially expanded ways of thinking to control items far 
beyond the classical, multilateral regimes, that requires more 
interaction, more diplomacy, more negotiation with the allies.
    This is in addition to just governing and administering the 
regular licensing system, so that things can move through as 
quickly as possible within, you know, the needs of the various 
agencies.
    So I would basically sort of top of bottom I think the 
demands on BIS now are radically and substantially different 
than they were when I was there, and certainly in the 1990's 
when the current system was established.
    Ms. Dean. And do you----
    Ms. Cinelli. Excuse me. May I make an observation?
    Ms. Dean. Well, I just want to followup on that----
    Ms. Cinelli. Oh, sorry.
    Ms. Dean [continuing]. If you do not mind. Mr. Wolf, do you 
have either a percentage that the budget should be increased or 
a dollar figure? Any kind of an estimate?
    Mr. Wolf. No. I am not smart enough at the inside baseball 
of the current budgets, but, you know, at least a doubling. I 
mean, some very radical, substantial increase, double, 
quadruple. I mean, the volume of activity being run through BIS 
and the significance of all of the issues everybody has 
properly laid out today warrants, you know, dramatically larger 
staff. And so at least a doubling of their current budget and 
the resources and the people and the expertise to go along with 
it.
    Ms. Dean. I have another area of interest, but do you want 
10 seconds to tell us what you wanted to ask?
    Ms. Cinelli. Yes, 10 seconds. There is a common thread 
here. The foundation for how the EAR is applied from all this 
licensing enforcement is the classification system. So in 
response to your question about resources, to the extent BIS 
has authorities, there should be significant resources devoted 
to the proper classification and the development of the 
Commerce Control List.
    Ms. Dean. I thank you for that.
    And then very quickly, I am very concerned--I know the 
world is concerned, frankly--about fentanyl, the precursors 
coming from China. If you could shed any light, Mr. Wolf, in 
the just 20 seconds I have remaining, on what is going on 
there.
    I met yesterday with Secretary Blinken. We now know that 
the precursors are coming into Mexico, and of course cartels 
and others are mixing them.
    Mr. Wolf. It is a serious horrible issue. I am glad you are 
focusing on it, but I am not the expert in how to address the 
situation.
    Ms. Dean. Anybody else? Ten seconds.
    Ms. Nikakhtar. Yes. I mean, we have trading agreements with 
Mexico. Mexico has to step up and do the enforcement it needs. 
It is ridiculous that we have maintained open borders, but they 
are not willing to do their part. It is absolutely--it is a 
good question.
    Ms. Dean. Well, I would push back on the open borders 
piece, but thank you, you are right. We have to partner with 
Mexico.
    Ms. Nikakhtar. Trading. Trading borders, not people, right.
    Ms. Dean. Thank you. I yield back.
    Mr. Mast. Thank you, Ms. Dean.
    The chair now recognizes my favorite green beret--I am just 
kidding. He is not my favorite.
    Mr. Waltz. Thank you, Mr. Chair.
    Mr. Mast. Mr. Waltz from Florida.
    Mr. Waltz. Yes. I just want to share some of the concerns 
that we have heard on the committee that I think with our 
current construct we are sitting kind of in the worst of both 
worlds. Our allies are frustrated. I see actual promotional 
advertising materials saying, ``Buy our stuff.'' It literally 
says it may not be as good as the Americans, but you do not 
have to deal with their export controls.
    Then, on the other hand, we literally see our greatest 
adversary, the PRC, rolling out item after item after item, 
from drones to hypersonics--we can go down the list--that look 
exactly like ours, and in some cases are performing better. So 
we have a construct that is frustrating our allies and 
enhancing our adversaries for all kinds of reasons.
    I want to take my time, though, to drill down on the 
operating committee. You know, we have talked a lot about 
commerce today, but the Department of Defense has a say in 
this. Energy and State have a say on this. And I find it 
striking--and have throughout my career--that when the agencies 
disagree, it elevates to the operating committee. And because 
the Department of Commerce is both chair and a member, they 
basically have the overwrite.
    And so there is a lot of concern--and I share the concern--
that Commerce is overweighted in its power when it comes to 
application determinations. And these are the very few that 
actually even go to the operating committee--separate issue--
because of Commerce's position. And from--according to our 
data, from 2017 to 2019, there was a 60 percent increase of 
licensing decisions made by Commerce, as the chair of the 
operating committee, without the consensus of the Department of 
Defense, State, and Energy.
    And then, furthermore, 10 percent of that, the chair made 
its decision with the support of only one of the other 
agencies. So I guess my question is, if we do not go to 
necessarily default no, which I would not be opposed to, but if 
we do not go to default no, I think we should go to default 
consensus, and particularly if the Defense Department has 
serious national security concerns.
    So, Mr. Coonen, do you think that harmonization of the 
sanctions lists--because we also have all kinds of different 
lists that do not match, where the Defense Department can say, 
``We have all of these concerns on these items'' or even these 
companies, and then Commerce can say, ``Thank you very much, 
but we are going to do it anyway.''
    Do you think the harmonization of those lists across U.S. 
agencies could help with these issues, and particularly with 
PRC diversion of technology?
    Mr. Coonen. Sir, I absolutely think that the harmonization 
of those lists would help. I also think that the rules--BIS is 
not doing anything that is not permitted in the rules, and so 
those rules need to change. And that is why in my paper one of 
the recommendations is to rebalance some of the authorities 
with the other departments.
    So, for example, with the Department of Defense, they 
should have potentially a veto or a greater sway, if you will, 
when it comes to items that are controlled for national 
security resources or for anti-terrorism. And it is the same 
for the Department of State. They should have more--a bigger 
vote, if you will, when it comes to issues that--or for 
technologies that are controlled for regional security reasons 
or for some of the non-proliferation regimes.
    Mr. Waltz. Ms. Nikakhtar, do you have anything to add 
there?
    Ms. Nikakhtar. One of my recommendations was it is 
ridiculous that Commerce has an outside vote. These other 
agencies have the expertise--the expertise--including the 
equities, right, to weigh in.
    I think that my recommendation was rather than it go to the 
Assistant Secretary, who has--for licensing, who has an 
imbalanced view of BIS but the Enforcement guys, like I said, 
are pretty forward-leaning_that once it has escalated, the 
Under Secretary who can represent both equities, gets a vote, 
but then every agency gets a vote in the appeal process. And if 
you need a tiebreaker, you go to the National Security Council.
    Thank you.
    Mr. Waltz. Thank you.
    Ms. Cinelli, do you have anything? Okay. Great.
    Mr. Chairman, I have legislation that I look forward to 
marking up through this subcommittee and committee that would 
do just that, and harmonizing these lists and hopefully really 
getting our arms around this problem. We cannot--I sit on Armed 
Services as well. We cannot spend--and science and technology--
$900 billion a year advancing into the most advanced 
technologies in the world to watch it literally walk right out 
the back door.
    I look forward to this committee's support. Thank you. I 
yield my time.
    Mr. Mast. I thank the witnesses for their valuable 
testimony and the members for their questions. I think we did 
all get a great deal out of this. I thank the staff for their 
research on this as well. I think there is a broad consensus 
that there are gaps. There is different solutions on how to fix 
those gaps and fill those holes, but certainly a broad 
consensus that there are very serious issues for us to deal 
with.
    I look forward to marking up the legislation of Mr. Waltz 
and any other ideas that members of the committee will have in 
dealing--in addressing this issue.
    Members of the subcommittee may have some additional 
questions for the witnesses, and we will ask that you respond 
to these additional questions in writing.
    And in that, I now recognize Mr. Crow for any closing 
remarks that you may have.
    Mr. Crow. Thank you, Mr. Chairman. Appreciate you calling 
this important hearing. And thank you to all the witnesses for 
taking time out of your busy work schedules to have this 
discussion with us, and to have a robust back and forth.
    And I agree with you, Mr. Chairman, that I think we do all 
share the same goal. That is, to balance American 
competitiveness and make sure that American businesses are 
robust and thriving, at the leading edge of technology, and we 
protect their technology. And at the same time, we address our 
adversaries' threats, particularly Russia and China, but also 
others that pose that threat.
    And we might disagree on how to get there, and some of the 
steps, and like you said so well, where those gaps are and 
maybe why they exist, but look forward to continuing that 
discussion to figure out where we can find some common ground 
and address it in the best interest of the United States and 
our shared constituents.
    So with that, I thank you again and yield back.
    Mr. Mast. Pursuant to committee rules, all members may have 
5 days to submit statements, questions, and extraneous 
materials for the record, subject to the length limitations.
    Without objection, the committee stands adjourned.
    [Whereupon, at 3:20 p.m., the subcommittee was adjourned.]

                                APPENDIX

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            RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD

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