▶ 0:07:54The subcommittee on South Central Asia will come to order and the purpose of this hearing is to examine the fiscal year 26 president's budget request for the Bureau of Industry and Security. This hearing will serve as an opportunity for members to examine the Bureau of Industry and Security's critical and growing role in the US ensuring that we win the AI arms race against the Chinese Communist Party.
▶ 0:08:40All right, today's hearing will examine the fiscal year 2026 budget request for the Bureau of Industry and Security, an agency whose mission is critical to ensuring America wins the AI arms race against the Communist Party of China. We are at a historic inflection point. Technologies that will define the 21st century such as AI, biotechnology, and quantum computing are achieving breakthroughs that increasingly sound more like science fiction than the reality that we're used to.
▶ 0:09:08These technologies have a potential to unlock tremendous economic prosperity, medical innovations, and human flourishing. However, they are not just drivers of economic growth, they are instruments of military power and security as well. Advanced AI models could coordinate fleets of self-driving cars in Michigan. They could also direct autonomous drone swarms over the Taiwan Strait.
▶ 0:09:31The nation that leads in developing and deploying these technologies has an opportunity to gain geopolitical advantages for decades to come. The CCC The CCP understands this. That's why it's trying to dominate these critical technologies by any means necessary through state subsidies, forced tech transfers, economic espionage, chip smuggling, and exploiting access to the West's most innovative AI labs and universities. AI dominance is central to the CCP's goals.
▶ 0:10:01Its military modernization efforts, surveillance state, and human rights abuses are amplified by AI. Export controls play a crucial role in ensuring the US and allied technologies are not Sorry, the US and allied technologies are not used to fuel the CCC CCP's pursuit of global dominance. Amongst its many important roles, BIS serves as a guardian of one of the world's most valuable and powerful supply chains.
▶ 0:10:29The ecosystem of advanced chips, tools, components, and design software that underpins the development China's leading AI companies have made it clear just how dependent their future is on US technology. In response to a question on what their biggest obstacle to AI development is, Deep Seek's CEO put it bluntly, quote, "Bans on shipments of advanced chips are the problem." Close quote.
▶ 0:10:57The CCP understands the importance of these AI choke points. That's why it's working around the clock to steal chips and exploit export control loopholes to internalize its production. That's why this hearing today is so important. BIS's fiscal 26 budget request includes a 133% increase in enforcement funding, a bold and necessary step.
▶ 0:11:23As the Deep Seek CEO made evident, it's not a lack of talent holding back China's AI development. It's the lack of access to US That's what this budget supports. It will allows BIS to better disrupt covert efforts to funnel US innovation to the CCP's military and surveillance state. So, let's be very clear. Enforcement is not about punishing innovation, it's about protecting it.
▶ 0:11:48It's about making sure that the technologies that define the future are not weaponized against our values, our alliances, or our own We also recognize that BIS operates in a dynamic and challenging environment. The technologies we're discussing are evolving rapidly rapidly. BIS must become faster, more adaptive, and and more technologically capable than ever before.
▶ 0:12:14This subcommittee is committed to giving the bureau of the tools and resources it needs to meet that challenge head-on. The geopolitical struggle between America and China defines the technologies of our time. Global AI development shaped by democratic values or authoritarian control will depend on the decisions we make right now. About licensing, enforcement, and strategic technology protection.
▶ 0:12:39I'm pleased that we are joined by Under Secretary Jeffrey Kessler, who leads BIS during this decisive period in history. Mr. Kessler, thank you for your service and your appearance here at the Uh the window for preserving America's technology edge is narrow, but it does remain open. BIS, with the support of Congress, must ensure America wins the AI arms race. Chair now recognizes the ranking member from California, Representative Kim Schrier, for any statement she may have. Thank you, Mr.
▶ 0:13:09Chair, and thank you, Under Secretary Kessler, for being here today. Uh it is mid-June, and you are the very first administration witness to testify before a House Foreign Affairs Committee this Congress. So, I hope the rest of the administration can follow your example.
▶ 0:13:27Today, we will examine uh the fiscal year 26 budget request for BIS and discuss the role of export controls within the larger national security objective of ensuring US leadership in the global AI race. I say US leadership because California, my state, is number is the number one source of semiconductor manufacturing facilities and jobs in this country. These equities are very important to me and all of us.
▶ 0:13:57Over the past decade, export controls administered by BIS have become an increasingly divisive tool in US foreign policy, decisive. Today, BIS is responsible for restricting the PRC's access to the advanced AI semiconductor chips powering China's military and technological advancements. It is also tasked with enforcing an extensive multilateral export controls regime on Russia in response to its unprovoked invasion of a democratic Ukraine.
▶ 0:14:26Yet, despite its centrality to two critical national security priorities, BIS's resources have not kept pace to meet the demands of its responsibilities. Since 2010, BIS's budget for core export control functions has remained relatively flat, while the number of license applications has nearly doubled from 20,000 a year in 2012 to over 40,000 a year in 2024.
▶ 0:14:49I am glad to see the significant funding increase for BIS in the president's budget, which must also be accompanied by increased responsiveness to Congress and greater congressional oversight. These resources will help ensure that the export controls needed to prevent the PRC from accessing leading-edge chips and chip manufacturing equipment can be effectively enforced.
▶ 0:15:12However, I'm concerned that robust export controls cannot make up for the immense damage this administration is doing to America's competitiveness in AI. To win the AI race, we can't just slow China down. We have to simultaneously speed up and sustain our lead in cutting-edge technology. Yet, Trump's budget would upend the federal R&D that is an essential enabler of the semiconductor technology pipeline.
▶ 0:15:38The president's budget slashes the National Science Foundation's research funding for microelectronics and semiconductors by NIST, which supports foundational research to commercialize new developments in semiconductor technology, would be cut by 28%.
▶ 0:15:55After hundreds of employees working on semiconductor policies were dodged, the Department of Energy's Office of Science, which supports national labs in the development of advanced manufacturing processes for semiconductors in the United States, is getting a 14% reduction.
▶ 0:16:12Not to mention the administration's culture war against universities and its draconian immigration policies, including the deployment of the National Guard in my home city of downtown LA right now, creating a perilous environment for the high-skilled foreign talent we are dependent on to make up the semiconductor workforce shortage. Trump doesn't need to force the repeal of the CHIPS Act, which has been essential to boosting domestic chip manufacturing to hurt our advancements in AI.
▶ 0:16:40Turning back to BIS, I'm concerned that Trump is treating export controls as a bar Americans from foreign adversary technologies that undermine national In March, the first major rule under the ICTS program came into effect, which will require a phase out of foreign adversary controlled software and hardware from passenger vehicles in the United States. And additional investigations and rule makings are underway now.
▶ 0:17:09The 2026 president's budget builds on these tremendous accomplishments by requesting $303 million for BIS. Um this will represent the single largest investment in BIS history and one that will significantly bolster our ability to protect national security. Um, an increase of this scale would enable BIS to significantly augment its enforcement capabilities.
▶ 0:17:32We would be able to hire almost 200 export enforcement special agents stationed across the United States um, who are responsible for apprehending and charging criminals seek to profit by unlawfully transmitting American technology to our adversaries. And this increase would also enable BIS to more than double the number of what we call export control officers, ECOs, who are uh, enforcement officials stationed overseas uh, from 12 at present to 30.
▶ 0:18:03These ECOs are critical for monitoring foreign entity compliance with US export controls. A portion of the requested budget increase would also fund uh, specialized engineers and technical experts who support BIS's enforcement efforts, for example, by determining whether a license was required for a particular export that has already taken These enforcement efforts are not only critical to protect national security, uh, but they can also pay for themselves
▶ 0:18:34in penalty revenue that results from the enforcement actions. BIS has an outsized role to play in promoting national security and supporting the President's America First trade policy. Uh, the Bureau's increased responsibilities and administering and enforcing export controls including in maintaining America's technological leadership in critical and emerging technologies like AI and investigating imports that threaten our national security. These tasks require commensurate resources.
▶ 0:19:05It's time for BIS to have the resources that it needs to do its job and keep America safe. The President's budget recognizes and enables this. Thank you, and I look forward to your Thank you, Mr. Kessler. I appreciate that, and I will now recognize myself for 5 minutes for some questions.
▶ 0:19:26And not sure you may or may not actually be aware of this, but at 10:08 Commerce Department released a statement announcing Micron Technologies doing a $200 billion investment in memory chips here in the United States. And I know the ranking member has expressed some concern about where government funding has gone on technology and technology development and R&D.
▶ 0:19:51I would I would be remiss if I didn't point out that the one big beautiful bill reinstates R&D and allows the private sector to go do that. And in in my mind, it has to be a partnership. We cannot just expect that the federal government's going to do much of this. So, I was I was proud to introduce the bipartisan CHIPS Security Act.
▶ 0:20:13Representative Foster and I, who we served together on the Financial Services as well, we worked on that, which would require location tracking on AI chip exports. Under Secretary Kessler, you are requesting a 133% increase to BIS's enforcement budget, and you laid out that would allow you to double those double the number of agents, I believe, that are looking at the enforcement.
▶ 0:20:38Are you seeing a large number of diversions of US AI chips, and could location tracking potentially assist BIS in preventing diversions of these chips to Thank you, Mr. Chairman. We do see significant efforts by wrongdoers to divert AI chips, as well as other products that are export controlled. But but we see those uh more more than you might expect.
▶ 0:21:07Um, and we have enforcement operations, uh, that are active to address those types of I'm concerned that we're not catching all of it, that there's a lot that goes undetected. Um, and this, um, this budget is intended to enable us to capture, to catch more of it, and prevent more wrongdoing. Um, there There There are some that deny that this smuggling is happening at all. It's happening.
▶ 0:21:36It's just a It's a fact. It's happening. Unequivocally, right? Yeah. Okay. Uh, that that seems a reality that some are, for whatever reason, are choosing to try to ignore. So, um, okay. Well, uh, yesterday President Trump announced a successful deal with China to restore rare earth minerals access to the United States. And we haven't seen necessarily all the details of that. We know there's been, uh, plenty of hardball negotiations that have been going back and forth.
▶ 0:22:03Um, yeah, Michigan, my home state, proudly serves as the home of American car manufacturing. So, I know firsthand how dangerous China's, uh, weaponization of rare earth supply chain is to our economy. I I was hearing that repeatedly, uh, from suppliers as well as the, uh, the OEMs, as original, uh, equipment manufacturers.
▶ 0:22:24Um, President Trump stated that in in ex- in exchange for China restoring access, the US would, quote, provide to China what was agreed to, including Chinese students using our colleges, close quote. Uh, can you share any of the details of the recent agreement, and were any US export controls on China included as part of that deal? So, the details, uh, are still to come, uh, and discussions are going on now between the governments.
▶ 0:22:52So, I'm not going to comment on the content of those discussions, but, um, the discussions were largely, um, you you about, uh, the Geneva agreement, making sure that China fulfilled its commitments from the Geneva agreement, including the removal of non-tariff measures that it had imposed afterwards, such as those for rare earths.
▶ 0:23:14And it's such an important issue, as you know and your constituents know well, you know, rare earths are critical input for automotive supply chains, defense supply chains, other supply chains, and the administration has been committed we've been working very hard to make sure that those inputs continue to flow, that the industries and jobs that depend on them remain stable. That's what we're focused on.
▶ 0:23:41Well, US export controls on China's AI capabilities are only effective if China is unable to produce an alternative stack at scale. Because of that, Chinese AI chips production capability is an important metric of success. Last week, Secretary Raimondo disclosed that China's AI chip production capacity is, quote, closer to 200,000 AI chips. Is that the formal position of the US government, and is that their assessment?
▶ 0:24:11And and does What does that mean? And and does that mean 200,000 Huawei 910C's or all Chinese AI chips? Can you shed some light on that? So, our our assessment is that Huawei's Ascend chip production capacity for 2025 will be at or below 200,000 200,000.
▶ 0:24:42and we project that most or all of that will be delivered to companies within China is investing, you know, I I think it's important to say we shouldn't take too much comfort from that fact. China is investing huge amounts to increase its AI chip production um and uh as well as the the capabilities of the chips that it produces.
▶ 0:25:05Um so, it's critical for us uh not to have a false sense of security to understand that China's catching up quickly, but uh that is our that is our projection for this year. Okay, my time has expired. Uh the uh ranking member is recognized for 5 minutes. Thank you uh Mr. Chair.
▶ 0:25:22And actually, thank you for um sharing that you referenced the Commerce announcement of uh the $200 billion deal, and the majority of that money is because of the Chips Act. So, let's give some credit to uh Joe Biden. That is a big deal. Um so, Mr.
▶ 0:25:45Kessler, as you know, uh enforcing export controls on Russia for its invasion of Ukraine requires constantly updating the entity list to account for front companies and subsidiaries that pop up to circumvent the controls. And um so, I'm you in your testimony, you stated that you all have added 80 countries to the entity list.
▶ 0:26:13but in the nearly 6 months since President Trump took office, BIS has not added a single company to the entity list in relation to Russia's war on Ukraine, effectively allowing our controls to deteriorate. So, I mean, is is that true that there have been no uh companies added to the entity list that have been in relationship to Russia's war on Ukraine?
▶ 0:26:44Well, we have continued to enforce all the export controls that we have in place, including those with respect to Russia. Um there are there have been enforcement actions since I've been in office that addressed Russian parties. Um, so, uh I I don't think it's correct Enforcing is not updating. Um, so, I'm I'm asking about updating the entity list.
▶ 0:27:10If we identify Russian parties that we believe should be added to the entity list, we would do that. So, the the reason why I'm asking is because putting restrictions on American companies without getting national security outcomes you desire doesn't seem to me to be a strong policy.
▶ 0:27:30And the outcomes that I would think we desire would be to block evasion of controls and stop the shipment of dual-use items to Russia. So, I'm just asking I would like to ask you if you would commit to restarting a regular cadence of entity list actions against entities supporting the Russian war Well, there hasn't been any pause.
▶ 0:27:59Um, so, when we identify entities that we believe should be added to the entity list and there's a formal process for gathering intelligence and for coordinating with interagency partners to determine which entities those are. If we determine a party, um, should be added and it's Russian, then we would do Well, it's you know, Secretary Rubio actually came before the full committee, to talk about many things.
▶ 0:28:25And, um, he did testify to the fact before our committee that in fact Russia was the aggressor in the war with Ukraine. So, do you do you disagree or agree with Secretary Rubio that Russia started the current war in Ukraine and is the aggressor in this conflict? I absolutely agree with Secretary Rubio's assessment of the war um, in Ukraine and defer to the State Department and Secretary Rubio on on foreign policy in general. Great.
▶ 0:28:54Well, I'm I'm so glad to hear you say that because I would hope that we would all be on the same page about making sure that we are blocking Russia's ability to smuggle these kinds of chips and equities and assets that are so important to us and our allies. And we also know that Russia is working with China. So when we're talking about the PRC, we should be adding Russia to that list as well. So I'd like to now move on to the Gulf AI chip deal.
▶ 0:29:23In the few minutes that I have left. So Secretary Kessler, as part of the AI deals that were announced last month, did the governments of UAE and Saudi Arabia sign any security agreements to protect US technology from being diverted to or remotely accessed by Chinese entities?
▶ 0:29:44what I can say is that the the that we have that we made deals with are very much aware of the security requirements that we have when we export AI chips. Those have been a topic of discussion and we've made no secret of the fact that, you know, for any for any chips to be exported any any of the the chips that that they're interested in getting, BIS approval would be needed and what we look at when we authorize or or not exports like that, what we look
▶ 0:30:14at is whether the chips are going to be secure when they're deployed overseas. So I would think that it would be a just a simple answer. Yes, we are going to do everything we can to protect US technology and keep it safe. Thank you. Thank you. I yield back. The gentle lady yields back. With that, the representative from New Jersey, Mr. Khanna, is recognized for 5 minutes. Thank you, Mr. Chairman.
▶ 0:30:42And thank you under Secretary Castle for being here today. As the world becomes increasingly digital the potential of technological has become an increasing concern. It is important that our export control regime support American businesses while preserving American security in both physical and in digital realms.
▶ 0:31:07Under Secretary Castle BIS recently imposed license requirements on the export of certain AI inference chips such as Nvidia H20 to PRC. How is BIS viewing all the overall export of AI chips to China and how are you considering factors like the evolution of PRC domestic capabilities and more advanced US chips entering the
▶ 0:31:38Thank you for the question. We have robust BIS maintains robust controls on the flow of AI technology to They are extensive. They apply to semiconductors and to semiconductor manufacturing equipment and to software related to manufacturing semiconductors all parts of the semiconductor supply So we we have a robust set of rules that controls this type of technology and
▶ 0:32:08prevents it from flowing to China and to to certain other countries as well. From time to time we need to update we need to update these rules because pardon me because the technology evolves and we need to make sure that our our rules keep pace with the technology. So when we take an action like the one that you described it's to make sure the most sensitive technologies don't fall into the hands of our adversaries.
▶ 0:32:33And what can we do as Congress to work with BIS to strengthen our export control regime. I appreciate the question. Um I think uh the first thing would be to uh give BIS the resources that the president's budget requests. I think it's important for the world to understand that Congress stands with BIS in ensuring that our rules are strongly enforced, that they mean that they remain robust.
▶ 0:33:00And I think it's important for uh our foreign partners and allies to know that Congress expects them to uh align with US export controls. You know, one issue that that we encounter frequently in in export controls and that is um recognized in in ECRA in the uh the the statute that um uh establishes export controls.
▶ 0:33:26One of the issues is that uh in order to be effective, export controls need to be uh uh need to be coordinated with other countries. We can't have a situation where other countries undermine US export controls by Um and uh again, I think it's important for American allies and partners around the world to understand that Congress recognizes this problem and expects them to stand with the United States when we impose our own export controls.
▶ 0:33:53And uh Under Secretary Gressler, undersea cable infrastructure carries over 95% of the world's internet traffic. Yet many of the components and supporting technologies remain available to foreign Earlier this year, I introduced the Undersea Cable Control Act, which calls for a strategy to prevent our adversaries from acquiring technologies critical to global cable networks.
▶ 0:34:19What role can BIS play in identifying and controlling exports of sensitive cable related technologies to ensure that our communications networks are not compromised by hostile cyber actors? Well, I think that's an important area to look at um and I'd be happy to work with you on that. I think we have a number of tools at our disposal including export controls um and potentially including uh the ICTS authority that I mentioned. So, um look forward to talking to you more about Thank Thank you.
▶ 0:34:48And um the foreign direct product rule was designed to close export control loopholes. But, key allies like Netherlands and Japan have not fully aligned their controls and allowing adversaries to access semiconductor tools with potential cyber and military applications.
▶ 0:35:06How is BIS engaging with international partners to ensure that multilateral export controls are harmonized and our adversaries cannot exploit allied markets to undermine US cybersecurity and export enforcement? Well, we and I I personally have been engaging with foreign governments to stress that point. Um uh So, I I want to assure you that we're very focused on that issue and we take it very seriously.
▶ 0:35:34It's critical for US export controls to be effective uh to governments like the ones that you mentioned uh on board with US controls. Thank you. You're back. Gentleman, his time has expired. Uh the gentleman from California, Mr. Bera is recognized for 5 minutes. Thank you, Mr. Chairman. Um Under Secretary Kessel, I'm going to follow on a line of questioning that um the the chairman started.
▶ 0:36:01I think last week in response to Senator Coons' question, um Secretary Letnick um said that China's only capable of producing about 200,000 of the advanced chips annually. I think you just confirmed that. Maybe said it might be even a little bit less than that.
▶ 0:36:20And yeah, that that's a surprisingly small number um compared to to Yeah, now you also touched on we shouldn't rest on our laurels and and and so forth. Um, I think you also indicated that right now those chips are for domestic consumption in China um, and and production.
▶ 0:36:41I I think um, let me ask this question um, how is China closing the gap with us and then what can we do working with this to you know, slow that that gap closure Thanks. I I appreciate the question. Um, so yes, as you said, we shouldn't take too much comfort in the fact that China's production of these advanced chips is relatively small because we know they have global ambitions.
▶ 0:37:09China wants to dominate the global supply chain in semiconductors and it's had plans to achieve that goal for more than a decade. Um, and it's it's consistently executing on those plans. Um, look, I think there there are two parts. One is we need to do what the president just did in the Middle East and ensure that American technology can become the foundation for AI infrastructure around the world.
▶ 0:37:38Um, because that it closes out market space for others that would supplant us otherwise. So I think that's an important component. Um, and uh, you know, deals like the ones that the president just concluded in the Middle East will help cement America's uh, primacy in this area. I think the controls are the other piece.
▶ 0:38:01We need to ensure that American technology doesn't become uh, sort of an input, an element of the uh, technological advancement that companies like Huawei or others that are controlled by our adversaries have. Um, so um, so with those two pieces together I think we can ensure that our lead over rivals remains as big as possible. Let me Let me continue on that line of questioning.
▶ 0:38:27Um one of the rationales for the um for the the Gulf deal was that if we don't do it, Huawei or others would would do this and help the Gulf states build this infrastructure. Obviously, based on our conversation right now, they're not capable of doing that at this particular moment in time.
▶ 0:38:46I think there are legitimate concerns I think on both sides of the I'll hear that as you know we provide some of our most advanced chips and and technologies to the Gulf states, we do want to make sure that the very secure, you know um Bill Foster has talked to me a lot about the location tracking um and you know ins- inserting technologies that make sure those chips are not ending up in Beijing or or somewhere else.
▶ 0:39:15Um if we do go down this path of you know working with the Gulf states, I do think it's going to be incredibly important that we do everything in a bipartisan way here in Congress but working with this to protect those chips so we don't actually inadvertently give um Huawei or the Chinese that ability to compete with us globally when they can't right now. Yeah, Representative Baird, I agree with you. Um and um I agree with you on all of that.
▶ 0:39:40I I think it's critical that we make sure the chips when they go overseas remain um and that's that's our mission. That's what we're going to do. Um second line of questioning um you know, I'm glad that you're increasing your workforce cuz I think um these export controls, these regimes to again protect natural advantages in this global competition are going to be incredibly important.
▶ 0:40:05My understanding though is um about 1/3 of your workforce um and personnel um were lost due to layoffs, early retirements, or resignations um and you've got an incredible workload, you know, you have seven active um Section 232 investigations and other things going going on. Um are you able at this particular moment in time to meet these critical responsibilities given, you know, what you've lost in terms of infrastructure and and manpower?
▶ 0:40:36Well, yeah. I I I I believe the number of people that we've lost is is smaller than that. Um but yes, I I do think we have the resources that we need to continue to function. I think we could do a lot more with the additional resources that we're Um you know, as I said, I'm concerned uh although we're we're catching wrongdoers, our enforcement operation is robust, I'm concerned that in many instances of wrongdoing go undetected, and that's what the budget
▶ 0:41:06request is Thank you. Gentlemen's time has expired. Uh the uh uh Congressman uh Self, our uh Subcommittee Chair of Europe, is uh recognized now for 5 minutes. Uh thank you, Mr. Chairman, and thank you, Under Secretary, for being here I want to highlight a growing concern. We know that China cheats. The People's Republic of China is increasingly bypassing our export controls through complex corporate structures.
▶ 0:41:35Right now, BIS's hands are tied when it comes to preventing our most sensitive technologies from falling into the hands of our adversaries, and we're seeing PRC-linked companies, institutions, and military end users establish often shell companies, to evade our restrictions.
▶ 0:41:54That's why I'm introducing the Stop Shells Act to close this subsidiary loophole, which means if a subsidiary is 50% owned or more by an entity list or military end user list entity, uh they would be it would apply to them. Uh corporate due diligence firms have identified thousands of Chinese subsidiaries that are at least 50% owned by entities already on the entity list. So, Mr.
▶ 0:42:25Uh, Secretary, do you agree that closing this loophole is crucial in preventing the PRC from circumventing our export controls? And further, would you agree that reinforced by a foreign direct product rule would meaningfully disrupt the CCP's acquisition of US technologies? And third, is 50% the right number? thank you for the question.
▶ 0:42:53I would have to look at the details, especially with respect to your question about FDPR. I I think in principle, I do agree that there's a problem. Uh, the problem that you're describing, that the BIS restrictions list, the entity list, the military end user lists, only cover narrowly the company that's listed. And it does it does create loopholes and make evasion and circumvention easier.
▶ 0:43:19So, I think that is something that's important for for us to address, and I'd be happy to work with you on that. Uh, very good. Um, so BIS recently put out helpful guidance clarifying pre-existing US policy that certain Huawei chips were subject to US export controls and require a license from BIS for export.
▶ 0:43:40Is BIS planning on issuing similar guidance for other Chinese products, such as semiconductor manufacturing equipment companies, uh, like Nora? the I I don't think we have any plans like that at the moment, but I would certainly consider it. Uh, I I'd be happy to talk to you and your your office about it more. Uh, very good. And uh, I will submit that to you in writing as a as a question.
▶ 0:44:10And and lastly, I'd like for you to address It seems to us that when we have lowered the threshold for a chip design, the companies US companies to include go just below the level. Would you address that for us, please? Well, yes. I I think um you know, I I I I think it's important for BIS to set the technical parameters of its controls with precision.
▶ 0:44:41And uh in a sense, I I don't blame companies for for trying to continue shipping products to China that are not controlled. Uh I think BIS should just make sure that the parameters are defined in a way that if companies do what's if companies do what we say is lawful, it doesn't undermine American national security. Um and so I I I I think that that's that's the main lesson for me.
▶ 0:45:09You know, we need to make sure that uh where we draw the line is where we intend to draw the line and that the corporate community can live with that. Because, you know, we we need to not only prevent technology from flowing to adversaries, but we also need to communicate effectively to the to industry about what's permissible and what isn't. If I can help help you with a term, US national interest. With that, Mr. Chairman, I yield back. Uh gentleman will yield.
▶ 0:45:41Uh Mr. Self, gentleman will yield to me. I yielded back my time. All right. I'd like to I'd like to take the remaining moment just to have one clarification. Um you had had uh said in discussion with the ranking members questions about the Middle East deal. Uh and I'm not trying to imply that this is what she was saying. I just want to make sure there's a clarification.
▶ 0:46:07There has not been a suspension of any sort of export controls with any of these agreements at this point. It's correct. You're you're okay, you were just reinforcing that all of the export controls that are currently in place are be are part of any agreement. Correct. No no no export controls have been suspended at all. Okay, great. Thank you. I think I was I was trying to say the opposite that of course when any ships go outside the United States, they must comply with export controls whether it's to countries that we've done deals with or not. Yeah, okay. All right.
▶ 0:46:37And that time is expired now. So with that the ranking member of the full committee Mr. Meeks is recognized for 5 minutes. Thank you and I want to thank you Chairman Hice and ranking member Kamlager Dove for organizing this meeting and it's good to see you again on the Secretary of Commerce I I I appreciate your being here to discuss the administration's budget But the problem I have because I just find it
▶ 0:47:08to have a credible hearing about BIS and its budget when the committee hasn't seen any detailed plans about the president's budget request for the agency. So we received a congressional budget justification from State but not from Commerce. So my question is when will the Commerce Department's congressional budget justification be provided to Congress?
▶ 0:47:39Representative Meeks, it's good to see you again as well. I enjoyed meeting with you a few weeks ago and look forward to remaining in close touch. you know, all the budget documents my understanding is the the Commerce Department has provided them. If there's something that still needs to be provided, I'll just take that back and uh be happy to follow up with you. Yeah, I surely we have not seen the uh the the the budget justification.
▶ 0:48:08Uh you know, so I don't know. It's hard to have this conversation uh when we have not seen that. So, I would hope that you could follow up and uh we'll make sure if you want we'll send you another letter uh just requesting exactly what we what we need.
▶ 0:48:25Secondly, um in the last few weeks, BIS has uh suspended licenses for several imposed new restrictions on chips and electronic design automation EDA tools, and rescinded the Biden administration's AI diffusion rule, which established a global regime for the export of our most advanced AI chips and technologies.
▶ 0:48:54So, my question is, can you tell me about the decision-making process surrounding these actions and your role in making them? Yes, the the diffusion rule the diffusion rule was very problematic. Um the diffusion rule was uh something that the Biden administration did uh in its final hours before leaving office. It was hastily constructed.
▶ 0:49:23Uh it established a regime a a worldwide regime for controlling chips that was um bureaucratic, heavy-handed, and drew arbitrary distinctions between different countries said some are favored and some are less favored. Um it offended many of our partners and Uh it it was uh it was not ready for prime time. And uh I think uh frankly, even you know, even members of the former administration might might admit that to you in private.
▶ 0:49:52Um so that's why we rescinded that rule. Uh it is not suitable for uh actually being put into practice. Um and we did that before the rule became effective because we didn't want to disrupt global markets in these critical technologies. As for the other steps that you mentioned, uh BIS is reviewing products of strategic significance across the board.
▶ 0:50:18We want to make sure uh that we don't uh uh unintentionally allow products and software and technologies that are important um that are uh you know, have have a national security significance to flow to our adversaries.
▶ 0:50:37So what I'm what I'm trying to find out is um has every single uh that you have suspended gone through full interagency and White House approval? Um there is an interagency process uh for handling actions related to licenses and we adhere to that process.
▶ 0:51:03So they that's set up by executive order and So those licenses that were suspended has gone through full I know it's set up. My question is did those companies that were suspended did in fact if I'm assuming that you were involved they went through the uh full interagency and White House approval process as set up.
▶ 0:51:27In any case where that interagency process has to be followed, we have we have done it. Uh so um for example, to issue a new license um to uh make a decision about an emergency authorization request, there there are certain types of actions with respect to licenses where BIS is required to adhere to this inter-agency process and we consult with our partners at the departments of state and energy and
▶ 0:51:57um we follow that process. Let me add a few seconds I have left. Are you planning any additional actions on the US semiconductor industries as it relates to China? I'm sure that we will remain active in that space. I mean this is a constant it's it's a constantly evolving landscape and we need to make sure that our controls remain effective so Are you planning anything immediately?
▶ 0:52:27have No, I'm not planning anything So there's no nothing planned additionally right now as it applies to China not immediately. Correct. Thank you. You're back. Gentle gentlemen's time has expired. Uh with that the uh representative from Indiana Mr. Trive is recognized for 5 Uh thank you Mr. Chairman. Uh BIS's enforcement capacity remains structurally structurally constrained by limited personnel.
▶ 0:52:57Uh the Bureau maintains only a dozen uh overseas export control officers. Uh they are responsible for conducting in-person end-use checks on thousands of export transactions annually. There have been delays in addressing emerging technologies uh certainly including the fast-moving areas of AI, quantum computing, synthetic biology and as these global threats evolve your Bureau uh must be able to compete in the private marketplace and other government agencies for the talent needed
▶ 0:53:27uh to to keep up with these threats. In coming I plan to introduce the uh BIS uh strength act. It's legislation that'll prevent adversarial nations certainly including China uh from acquiring product that could boost their economic competitiveness in areas of concern giving your bureau the hiring authority to bring leading technologists in for 1-year terms at market competitive rates to craft smarter faster policy.
▶ 0:53:58Mr. Kessel, I'm not trying to lead the witness here but do you believe that this flexible hiring authority could help BIS keep pace with innovation and anticipate and not just react to the emerging national security threats from these emerging technologies? It sounds very useful, I have to say. And some of the most talented people that I've worked with at BIS, particularly technical experts have a strong industry background.
▶ 0:54:26Obviously, we need to understand as an institution, we need to have a deep understanding of what industry is doing, what technologies are important. So, your proposal sounds very constructive and I appreciate it. Very good. Thank you. Mr. Chairman, I yield back. Thank you. chair now recommend Congresswoman Johnson from Texas. Thank you, Mr. Chairman.
▶ 0:54:56Under Secretary Kessel, I I appreciate that you are taking time to be with us today so that we can hear from you You are only the second Trump administration official to testify in front of this committee and actually the first to testify at the subcommittee level. So, I'm pleased to see you here. As we see our adversaries take steps to work together with Russia, China and Iran financing each other, the Bureau of Industry and Security is one of our most important national security tools to ensure that we maintain our technological leadership and enforce export controls.
▶ 0:55:25But it is important that we if we are to cut you a $311 million check all while the Trump administration slashes all other agencies critical to our economic leadership that we receive the final budget justification that you are obligated to provide Congress. And I want to echo Ranking Member Meeks' concerns that we have not received that justification, which is unusual for you to come here and testify prior to us receiving the budget descriptions so that we can appropriately inquire about it.
▶ 0:55:53You and I would ask that you please submit that at your earliest Instead, you are asking for a 50% increase without telling Congress about your AI enforcement strategy or plan. So, what what justifies this massive adjustment of increased funding for BIS? And what specific metrics for improvement are you committing to achieve with this additional funding? I I I think I am here to explain uh the plan for for these additional resources.
▶ 0:56:24look, we we have a small effective, but small enforcement apparatus. We have uh you know, around 200 people who are responsible for enforcement altogether. And that includes many uh frontline officers, uh people who are responsible for actually apprehending wrongdoers.
▶ 0:56:46It includes the 12 export control officers that I mentioned before, the the officials who are stationed outside the United States to make sure that foreign companies and countries are doing what they're supposed to do with our technology. But these numbers are vanishingly small uh for uh the types of products that we're talking about, right? We we're an agency that handles uh so you know, something on the order of 10,000, 20,000 licenses per month.
▶ 0:57:13Um you know, we need more than just uh one officer per country in the world to enforce these rules effectively. And that's what this budget increase is Um Mr. Chairman, at this time I'm going to yield the remainder of my time to Ranking Member Meeks. Thank you. I I wanted to ask you one more question.
▶ 0:57:36Uh this week your colleague from the National Economic Council director uh Kevin Hassett told the uh media that scaling back US export controls on China is on the table and the trade negotiations with China in and I'm deeply concerned about this administration uh mixing export controls which require a national security with trade negotiations.
▶ 0:58:03And so using export controls as a leverage in a trade negotiation, I believe undermines the credibility of America's export control regime. So can you elaborate and tell us which controls are on the table in your negotiations with the Chinese and why? And what controls are not on the table and why? I'm not going to comment on the contents of discussions between diplomatic discussions between the United States and China uh which are continuing.
▶ 0:58:33Um what I will say is that export controls have been strong and I'm confident that they will remain strong in the future including with respect to the AI technologies that we're talking about um and uh many other technologies of Were you at the Were you in the negotiations for the trade talks? In London? I was I was in London. I didn't participate in all of the talks.
▶ 0:59:00But you participated in some of the Limited in a in a limited set of them. You care to say which talks you participated in? I'm not going to comment more on the contents of the discussions. as under secretary have you approved any export controls with the aim of bolstering the administration's leverage in an ongoing trade negotiations.
▶ 0:59:32I wouldn't I wouldn't say that. So when we impose controls, it's based on an assessment of what would promote national security and foreign policy interests of the United States and that's what the statute requires. So that's the basis that that's the basis on which we apply Well, you understand my concern.
▶ 0:59:50You were there part of it and the to me these two separate Well, we I mean look part of part of the discussion is part of the concern is China's measures including those related to rare earths and those were styled as export Are you back to the gentle lady? Oh, I think my yeah, I think we're and the congresswoman yields. Yes, sir.
▶ 1:00:20I yield back. Thank you. The chair now recognizes Representative for 5 minutes. Thank you, Mr. Chairman. And as competition with China over cutting-edge technology dramatically intensifies, we can't overstate the importance of effective export controls. And the role of the Bureau of Industry and Security BIS in our national strategic strategy is even more critical than ever.
▶ 1:00:47Sir, you really could use our help in Congress as you're stating and I I support that. Thank you, sir. You're welcome. Advanced semiconductors, quantum technology, artificial intelligence and autonomous drones can be easily repurposed for military use by our The range of products that require careful monitoring is highly diverse and the supply chain for advanced technologies such as semiconductors is highly complex involving numerous international stakeholders.
▶ 1:01:18This means it's nearly impossible for the US to unilaterally control the entire process. And my multinational cooperation for effective effective export controls is critical. Now, the cooperation among the among the US, Japan, and Netherlands on advanced semiconductors manufacturing equipment technology can serve as a good example.
▶ 1:01:42Now, when we think about effective export controls, we need to focus not only on which items should be regulated, but also on how these regulations are effectively implemented and monitored to achieve our intending goals. Several significant loopholes have been reported, such as acquisitions by obscured companies under the control of regulated Chinese entities, and evasive imports through third countries.
▶ 1:02:08These examples illustrate the difficulty of ensuring ensuring the workable enforcement of export controls. Nonetheless, we remain resolved in our commitment to provide you with effective policy tools and work together to secure national interests in the face of this critical competition. Sir, you have a heck of a job.
▶ 1:02:29So, uh Under Secretary, which area or items do we need to strengthen our international cooperation to deter our adversaries' technology advancements, and are you thinking of utilizing the foreign direct product rule to prevent foreign backfilling of US companies? Thank you, Representative Morelle. I appreciate the question.
▶ 1:02:52I I think it needs to start with some of the areas that you mentioned, uh particularly controls on semiconductors and semiconductor-related technology, semiconductor manufacturing equipment, um software that relates to semiconductor manufacturing, um and uh other AI-related technologies. We need to make sure that for all of these critical technologies, our allies are fully aligned.
▶ 1:03:16And uh I agree with you that there has been some progress, particularly with respect to the Netherlands and Japan, but it's incomplete. The task is incomplete, and more needs to be done. I I would consider using the foreign direct product rule. I think it's an important tool in our toolkit um to make sure that uh there isn't backfilling, as you said.
▶ 1:03:38Um I think the the best approach, when it's feasible, is for foreign countries willingly, especially our allies and partners who share after all, they share our security interests. And these controls are all about promoting national security. So, the best outcome is when they willingly impose controls to achieve alignment with ours. But yes, where that's not possible, I think that we should consider the foreign direct product Uh thank you.
▶ 1:04:04And sir, what kind of authorities and new funding are necessary to implement more effective export controls? Well, I think it's the funding that we're requesting in this budget, a a significant increase in enforcement capacity. Um you know, as I mentioned a moment ago, we have one, you know, about approximately one enforcement um official per country in the world. And that's uh just that that's totally inadequate to the task that we're charged with.
▶ 1:04:34These are technologies that are uh critical to national security. They're incredibly valuable, and I think it makes sense for the United States to invest in protecting Thank you for your efforts. I do hope and I support you with your goals that you're requesting. Thank you for your time and your expertise. Thank you, sir. Thank you, Mr. Chairman. I yield back. Thank you. The gentleman yields.
▶ 1:04:57Uh we're now going to have a second round of questions, and the first person will be asking those of Congresswoman Johnson. You recognize her for 5 Thank you so much, Mr. Chairman. Um I'm just going to pick up where I left off a little bit. Um So, one of the you we've kind of been touching on this, but my question is is very specific. One of the Bureau's core missions is international cooperation on issues from controlling the spread of dangerous goods and technologies to protecting critical infrastructure.
▶ 1:05:28As my colleagues have mentioned, especially with export controls, effective enforcement is often determined by international cooperation. And coordinated efforts to harmonize US laws with our trading process partners. So, I know you've incre- you've you've testified that you're having um increased personnel. But, are there any other aspects of how you intend to spend the 120 million budget um increase that your agency is requesting other than on personnel specifically?
▶ 1:06:00um I think I think it is mostly it is mostly personnel. A portion of the budget may go to I'd have to check, but I think a portion of the budget may go equipment that enforcement officers need, bulletproof vests, and cars, you know, service cars that they use when they're doing enforcement um things like that. So, but I think I think most of it will be for for personnel and things that that the enforcement personnel need.
▶ 1:06:30I and I I guess I just want to register agreement with your with the first part of your question also about the importance of international cooperation. You know, as I mentioned a moment ago to Representative Moolenaar, um it really is important to uh well, preferably to get countries foreign foreign countries willingly to align with our export controls. And when that's not possible, to consider other options.
▶ 1:06:53Um I want to completely change the topic for a moment um and turn to a often overlooked issue that I'm uh very passionate about, which is just the intellectual brain drain that's happening in our country right now, and I think it's a a matter of our national security. I'm concerned that the US is producing just the same number of electrical engineering graduates here in 2025 as we are we did in 2021 almost 25 years ago.
▶ 1:07:21This means that even if the administration is successful in reshoring chip manufacturing and semiconductor leadership, there may not be sufficient workforce in place to sustain these efforts. As an agency within the Department of Commerce, the US government agency charged with creating conditions for economic growth, promoting job creation, and attracting foreign direct investment, what is BIS doing to support growth of of the engineering talent pipeline here in
▶ 1:07:51the United States so that we can remain to have a scientific technological advantage? BIS's mission is to um critical technologies and to protect critical supply chains.
▶ 1:08:11Um as a department uh and as an administration, ensuring that we have a sufficient flow of talent into our cutting-edge technologies and cutting-edge companies is absolutely a priority. Um and we have a range of initiatives across the government to ensure, for example, American dominance, continued dominance in AI and other scientific fields.
▶ 1:08:33Um and also to ensure a robust workforce um you know, at the at the technical level, you know, uh trade schools, vocational training. Um so um you know, I I agree with you about the importance of that and something that that we are focused on as an Yeah, I have a lot of concerns about the attack on higher ed in this country. The the war that the administration seems to be having with higher ed in terms and and also on our immigration talent.
▶ 1:09:00You know, we have scientists who have been who's had their funding cut off for their research uh and then China has come in and offered them uh all the funding in the world to continue to lure them away since the United States is with the cuts in the cross other disciplines in this government. It's harming our research. It's harming our development. Have you expressed concerns within the administration that some of these other efforts are counterproductive to the work that you're trying to achieve? No, not at all. And I I don't see anything counterproductive.
▶ 1:09:31Well, I completely disagree with that cuz I do believe it's counterproductive when the United States has invested significant sums of research of resources to educate uh foreign talent at our universities, to put them in labs, to put them in research, to pay for their research, to then unilaterally cut it off after decades of progress um and Nobel Prize winning efforts and and the like uh only to be recruited by China and some of the the very countries that were in this discussion to keep a competitive advantage.
▶ 1:10:00It certainly isn't helpful at all. And I would suggest that you take a look at that because if we don't have the talent in this country to continue to develop and research and push our technologies forward, we will be behind in this effort. None of these export controls are going to even matter. Well, with that, I yield back. Thank you. Thank you.
▶ 1:10:16The The congresswoman yields and I now recognize uh myself for 5 There are serious concerns that SMIC is violating US export controls in its production of advanced AI chips for Will you commit to utilizing the increased enforcement budget to thoroughly investigating SMIC and finally determine SMIC's compliance with US export controls?
▶ 1:10:47If we believe there's a violation happening, we will absolutely investigate it. And if you have information about any particular company that's violating export controls now, we would absolutely investigate it, especially that one. Thank you. It doesn't have to wait even for the for the additional appropriations. I mean, any any and I I think that goes for for everybody, you know, if there's ever any violation that you think may be happening, we would want to know that Okay.
▶ 1:11:13Our export controls require robust enforcement, but they also frequently uh require timely administration. The Export Control Reform Act requires BIS to process licenses within 30 days of receiving an application. What efforts is BIS taking to meet that goal? Well, we have a significant staff in the part of BIS called Export Administration that's devoted to processing license applications.
▶ 1:11:43And so, that's that's how we try to ensure that licenses are processed in a timely way. Thank you. And and and how is BIS leveraging global demand for US technology to convince other countries to assist in enforcing US export controls and preventing illegal div- yeah, I mean, I I I think I'm not sure
▶ 1:12:13I would I would frame it exactly that way. My view is that it's positive when US technology is used uh as the basis as the foundation for uh technology infrastructure around the world because there are alternatives um and we would rather have foreign countries choosing US technology rather than others.
▶ 1:12:35I see the role of export controls as making sure that when that happens, it's done in a secure way, in a way that ensures that the technology remains uh in the hands of the United States and our partners and allies and not in the hands of our adversaries. Thank you. That That completes my final round of questions. I now recognize the congressman from Texas for his second round of questions. Uh thank you, Mr. Chairman.
▶ 1:13:06So, I want to explore our export controls almost in general because your answer to my first round of questions was was interesting. so, do you believe our export controls on advanced semiconductors, those most related technologies are effectively curbing the PRC's access to militarily significant chip capabilities? I do. I do.
▶ 1:13:34I think um uh and Chairman Huizenga mentioned in his opening remarks that uh there are uh PRC company officials who have acknowledged that US export controls are a significant impediment uh to their uh to their own companies' development.
▶ 1:13:52Then, how aggressively could BIS leverage the foreign direct product rule to restrict China's access to advanced Particularly when foreign labs are producing these same items using our technology? BIS has the ability to impose the foreign direct product rule, particularly with respect to technologies.
▶ 1:14:22Um so, the the FDPR doesn't apply equally across technology areas, but in the area of semiconductors, it's it's fairly strong. So, we have a lot of flexibility um to be aggressive. So, what legislative authority would strengthen your hand? I would rather than commenting on that uh let me just suggest that we have a separate conversation about uh how that might be done.
▶ 1:14:53Uh I think there are ways that that Congress could help strengthen BIS's authority in this area. Uh I look forward to that conversation. And uh to what extent are our efforts by our our allies' export controls, particularly countries like Netherlands, Japan, South Korea?
▶ 1:15:13And what is your candid assessment of the multilateral export control Well, that's a complicated question. I I think, you know, my my my um I I think there's a lot more to be done. As I said, I think there has been progress uh in achieving greater alignment between uh the United States and some of those countries, but it's incomplete.
▶ 1:15:39And it's incomplete in important ways in the areas where we haven't yet achieved alignment, unfortunately, are enabling uh US adversaries to advance and cultivate their technology.
▶ 1:15:53We've sort the the um the system, the regime that the United States and its partners and allies have set up um has uh uh encouraged adversaries to find alternative pathways to acquire advanced technology, and they're very good at that. They're very good at uh finding ways around around the rules, and and that's happening.
▶ 1:16:19So, I think it's a serious problem, and one that uh you know, I as I mentioned before, I think in response to another member's question, I've been very focused on Um so, I think I think there's a lot more to do there. And I just want to emphasize on the Science, Space, and Technology we are starting to realize just how critical AI and quantum computing marriage could be.
▶ 1:16:45I mean, there are people that they will tell you the first quantum computing the first, will render our So, this is a vital question. Advanced semiconductors. This is This is absolutely critical to our national interest, our national security, and our national defense. I fully agree. Yeah.
▶ 1:17:11So, this is this is more important than just the Washington speak here. It's it's it's vital. With that, Mr. Chairman, I yield back. Gentleman from Texas yields. Representative Moulton is recognized for 5 minutes. Thank you, Mr. Chairman. Last Congress, this committee uncovered that BIS was routinely approving licenses for some of the worst enablers of the CCP military human rights abuse, and surveillance state.
▶ 1:17:40For example, between November 2020 and April 2021, BIS approved 60 billion worth of licenses to Huawei and 40 billion worth of licenses for SMIC. Uh in FY23, BIS only denied roughly 2% of all license applications it received.
▶ 1:18:02What actions, sir, are you taking to reassure Congress that additional funding will not simply be used to facilitate BIS's traditional rubber stamp policies for CCP? Let me be unequivocal. That has stopped, and it will not resume. Loud and clear. Thank you.
▶ 1:18:23And, sir, what is your assessment of China's recent technology technological advancements such as Deep Six and Huawei launch of first laptops with self-developed computer operating systems? And, do you believe that these developments indicate that we need more robust export controls? I do.
▶ 1:18:48Uh you know, I think I think that it it it reveals uh several different areas where our export controls should be stronger both on the hardware side and and on the software side. I think in practice the hardware is easier to control.
▶ 1:19:05There was a lot of reporting after um Deep Seek's January advancements about um the uh it it's use of uh certain chips made with US technology um for um for performing inference operations. Um and BIS has addressed that.
▶ 1:19:25Um but you know, I I think it it does show that we need to constantly be vigilant about the potential use of US technology for um our adversaries and their companies to achieve advancements over us and to leapfrog us. Very good. I trust everything will go well under your leadership. Thank you so much. Thank you, Mr. Chairman. I'll yield back. The the chairman Excuse me, the the gentleman yields.
▶ 1:19:53Uh Under Secretary uh Kessler, I'm interested in hearing more about how you think that we should categorize AI when contemplating our export control Is it a general purpose technology like electricity or steam engines or is it more of a weapon? And so, is it closer to an F-35 or a Boeing 737? And how should these analogies shape our export control strategy?
▶ 1:20:21Well, all all of the analogies have a degree of imprecision. Um another one that I've heard used is civil nuclear technology, one that has enormous potential benefits to humanity, but that can be dangerous if it falls into the wrong hands. Um one that needs to be controlled carefully and monitored, especially when deployed overseas, but one that we should also promote. Um and ensure uh United States continued leadership in.
▶ 1:20:50So I, you know, I think that um it is an area that needs some degree of regulation. Uh some degree of regulation, particularly with respect to We need to make sure that when it's deployed uh in the United States or overseas, it's deployed in a secure way, one that is consistent with American Uh but it's also important not to regulate this to death.
▶ 1:21:15Uh and I think that's the trap that frankly the Biden administration fell into with the AI diffusion rule that I was discussing a moment ago with another member. Um uh that was an example of uh you know, a command and control style regulation of this dynamic and rapidly evolving technology area that that would have just uh strangled it.
▶ 1:21:37And what Yeah, what specific areas of concern did you have regarding the that Regarding the diffusion rule? I mean, uh they are almost too many to to to list.
▶ 1:21:54There were there was a series of elaborate caps on computing power and the number of chips that companies could get depending, you know, per country and depending on the classification of that country and um it was just a a very uh Byzantine set of um difficult to understand, much more difficult to comply with, and divorced from commercial reality. Thank you uh for that clarification.
▶ 1:22:24Congress has persistently raised issues with BIS's delays in identifying emerging and foundational technologies at BIS as is required under the ECRA. BIS has effectively established a shadowy policy that will only recognize emerging and foundational technologies after working through the Wassenaar The statute clearly does not provide a Wassenaar exemption exemption to BIS's
▶ 1:22:55statutory responsibilities. And BIS delays directly affect CFIUS jurisdiction. Will you commit to ensuring that BIS follows the ECRA's mandate and ends its shadow Wassenaar requirements prior to identifying emerging and foundational technologies? Yes. If if if that if that shadow policy exists, that's not one that I will honor.
▶ 1:23:23Um I I I I agree with you that there's no requirement to perform some kind of multilateral box-checking exercise before recognizing and controlling uh foundational Thank you. And then uh one one more question for you, sir, uh for me. Uh BIS has not fully replaced its IT infrastructure since 2008.
▶ 1:23:48The current IT systems present legitimate national security risks as it hinders BIS's ability to conduct investigations, produce analyses, and process licenses in a timely manner. The One Big Beautiful Bill passed by the House included resources for Commerce to improve its IT infrastructure.
▶ 1:24:13Are the funds in the One Big Beautiful Bill sufficient for BIS to address its IT I believe so. I believe so. And in in which areas would you first focus utilizing those resources? Well, we need to shore up the security first and foremost of BIS's IT. Unfortunately, BIS much of BIS's IT system runs on a platform that's two decades old.
▶ 1:24:41Um so, it needs to be updated and overhauled. And and we need to focus especially on I I I represent I I'm sorry, Representative I yield to Representative Self for the Uh thank you, Mr. Chairman.
▶ 1:25:02So, I think it's fair to say that not all of the people that can produce advanced hold our our position on China that it is certainly a peer adversary.
▶ 1:25:22are you prepared to recommend to the to the Secretary of State and to the President that if our export controls or our allies or other nations that are producing these chips continue to provide them to China whether surreptitiously or openly that um other means might be necessary to curb the traffic of advanced chips
▶ 1:25:52into China. And I have no idea what that might be, what might be decided, but would you be willing to it to advise the use of sanctions, of tariffs, whatever means outside of export controls to stop the flow of advanced chips into China. I would. You know, my my view as I believe yours is is that these are national security priorities.
▶ 1:26:23And the United States should consider all options when advancing those priorities. Um, and uh, you know, including but not limited to those that are in the export controls toolkit. But there there are there are tools outside of that toolkit that we should consider as well. Uh, thank you for that answer, Mr. Secretary, and I yield back. Thank you. Representative Self yields back.
▶ 1:26:50Chair now recognizes Representative Kamlager-Dove, ranking member of this committee, for 5-minutes of questions. Thank you, Mr. Chair. and I'm so glad that um, we're still having these conversations. Great questions. Under Secretary, I I wanted to go back to uh, some of the earlier questions that I'd asked you about uh, the Gulf AI I chip deals.
▶ 1:27:14Um, and I know that you said earlier that it was your goal to make sure that our chips remain secure, uh, and I think it's our intention to make sure that American countries and our allies around the world um, also feel like they are being taken care of and thought of by this administration. So, um, uh, we also do know that there are chips and entities that are getting smuggled into Russia or accessed remotely by China.
▶ 1:27:41Um, so, would you commit right that no advanced US AI chips would be exported to the UAE or Saudi Arabia until those governments sign a binding security and monitoring agreement?
▶ 1:28:01What I would commit to is ensuring that for any AI chip exports that require a license, we we ensure that rigorous security requirements are in place and we would enforce those requirements. And so, what does rigorous security requirements and enforcement look like and mean to you?
▶ 1:28:25Among other things, it means that the you know, if the if the chips are going to be deployed to a data center located overseas, we would want to make sure that the operator of the data center, that the cloud service provider if if if it's being deployed as a cloud, that those companies are trusted, that they have demonstrated that they that they can fulfill rigorous security requirements with respect to
▶ 1:28:56who can access the computing power and also physical security. Um it would also include uh the personnel that that work at those facilities. It would include um the companies deploying your customer requirements to make sure that, you know, there are not shell companies um illicitly diverting Right.
▶ 1:29:17And I And I don't want to I only have a few minutes, so I I do not want to cut you off, but I am glad you said that because we do know that, for example, Russia does participate in starting up shell companies so that they can evade the kinds of export controls that we have in place.
▶ 1:29:34You also mentioned license And so, segments of the US industry have actually complained to members of Congress about significant delays when it comes to license reviews, and these delays have been so prolonged and pronounced that some companies are saying that there seems to be a deliberate pause. So, have you ordered a pause or delay in review of license applications since you assumed your role at Commerce? I have been carefully reviewing the licensing process.
▶ 1:30:04As another As another member mentioned, there has been a problem in the past with BIS rubber stamping license applications including it appears those that are for products that go to China and technologies that go to China and and other adversaries. I view that as a problem and when I came into office I decided that one of the first things I would do is to take a close look at the licensing process.
▶ 1:30:31I'm so glad that you I'm glad that you are saying that because I do think that's important. I am also concerned when we hear from companies who say that it seems to be an excessive length of time for this review process. Even though it is important that we carefully review. So, has there been an increase in the average time it takes BIS to get back to companies with license applications decisions? I don't know but I would I would guess that there has been because I'm no longer rubber stamping applications.
▶ 1:31:01I you know, it would be helpful for us I think to get that information. I know the chair talked about what's happening in Michigan. I've talked about you know, the companies that are in California. I'm sure that there are other members. I know Arizona is also a state that's deeply committed interested in semiconductors and issues around export controls.
▶ 1:31:22So, could you share that information with this committee about the length of time that it is taking to review these license applications and what your goal is in terms of decreasing the time it takes to review while you are still making sure that you are giving it careful consideration? We can provide information about our licensing practices. Thank you so much and with that I yield yields seeing no further questions.
▶ 1:31:52I want to thank under secretary Castler for his valuable testimony and for the members for their questions. Members of the subcommittee may have some additional questions for the witness, and we will ask you to respond to them in writing. Pursuant to committee rules, all members may have up to 5 days to submit questions, and extraneous materials for the record, the sub- subject to the length limitations. Without objection, the committee stands adjourned. Thank you. Thank you.