▶ 0:00:06You guys ready? Committee on Foreign Affairs will come to order. I'd ask everybody rise, join me in reciting the Pledge of Allegiance. I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation under God, indivisible, with liberty and justice for all.
▶ 0:00:46Good morning, everybody. The purpose of today's hearing is to hear from the Under Secretary overseeing the Bureau of Industry and Security regarding the Trump administration's budget request for BIS in fiscal year '27. In particular, the discussion will cover the AI arms race against the Chinese Communist Party and the importance of information and communications technology and services office, which reviews foreign technology threats. I'm going to now recognize myself for an opening statement.
▶ 0:01:17Under Secretary Kessler, welcome to the House Foreign Affairs Committee. Welcome back, I should say, to the House Foreign Affairs Committee. You've been here before. This hearing is about beating the Chinese Communist Party in the AI arms race. It is a race that we can't lose. I think we all recognize that. We, the United States of America and our great industries, like Anthropic, got to meet those first. But we all know that China is trying to steal our technology any way that they can.
▶ 0:01:48Like Methuselah, as an example. And we know that that's already old We will see models far more more than Methuselah soon. And if we don't act now, China might beat us to the next advanced AI model. They already unleashed COVID on us, and I have no doubt that they are waiting to release the next super COVID if that's what they could develop. Or a missile defense Methuselah that could get around any potential any golden dome that the United States of America has.
▶ 0:02:19When CIA Director John Ratcliffe says that the frontier models are developing capabilities akin to digital weapons, I take that very seriously. When Secretary of War Pete Hoekstra says CXMT and Alibaba are Chinese military companies and that AI will redefine the character of military affairs over the next decade, I take that very seriously.
▶ 0:02:44These are real battlefields and real Today it's Ukraine, Iran, Venezuela, tomorrow potentially Taiwan and China. Those are the stakes of the AI arms race. President Trump has been clear about how to win. Stop the commies in Beijing from getting or using our crown jewel technologies against us. BIS is the tip of the spear in this tech war.
▶ 0:03:13The BIS Under Secretary is not just a sheriff enforcing pre-existing rules. He's the lead general in the AI arms race tasked with designing and enforcing strategies to fulfill the commander's President Trump has issued four main goals for BIS as a commander's guidance. One, no Blackwells for China.
▶ 0:03:37Two, close export control loopholes as stated in the America First trade policy Three, tighten controls on chip-making equipment and stop our allies from undermining our export controls from the AI action plan. Four, no Chinese military end users or remote access as stated in the national security conditions in the H200 rule.
▶ 0:04:01These are the president's metrics for We need to know now what BIS needs to get the job done, and I mean the entire job, not just one part of it. Success is not stopping only some of the Blackwells smuggled into China. It means stopping all of them. Success isn't stopping some chip-making tools from Chinese AI chip makers. It means stopping all of the advanced tools.
▶ 0:04:29Success means putting every company that Department of War has identified as a Chinese military company on the entity list. Why? Because they are looking to create every AI inroad they can to accessing every American bank account, every American stock portfolio, every municipal water treatment center, all for the purpose of being able to cause destruction. Those are the stakes.
▶ 0:04:56They're looking to be able to more quickly assess every in the Pacific against the United States of America's The House Foreign Affairs Committee has done its part. We've marked up more than 20 export control bills to execute on the commander's guidance. And to be clear, these bills we're pushing on this are being proposed because they need to be there to get the job done.
▶ 0:05:27That's why we are proposing these bills. We support the president's request to increase BIS's budget because that's what is needed to get the job done in this high-stakes race. There have been significant enforcement successes. Stopping approvals of licenses for blacklisted companies is an important achievement and we congratulate you on the work that you've done there. But key orders from the president need to be fulfilled 100%.
▶ 0:05:56BIS has not added entities to the list in 2025 since October of 25. We need to see more of those entities added to the list. It is important that BIS makes licensing decision including denials in a timely manner and provides clarity to American businesses. That is something that we want to support you on. BIS and the House Foreign Affairs Committee working together have to carry out the president's vision.
▶ 0:06:24We have to win this new Cold War against the commies in Beijing that are trying to steal everything that they can and you are the shield from preventing them from stealing everything that they can. I thank you for coming today under secretary and I look forward to hearing your testimony.
▶ 0:06:43I would ask now unanimous consent that the member from Michigan, chairman of the committee on CCP, Chairman Meeks be advanced to sit on the dais and participate in today's hearing without Chair now recognizes Actually, I will say this first because ranking member Meeks is not here right now. Other members of the committee are reminded that opening statements may be submitted for the record. We are pleased to have you under secretary uh for industry and security, Jeffrey Kessler before us today.
▶ 0:07:12Thank you for joining us again. Your full statement will be made a part of the record. I'll ask you to keep your spoken remarks to 5 minutes in order to allow time for members' questions and I'll also thank you for the uh times that you've joined us in the SCIF as well uh to give us classified briefings. You made yourself very accessible and we appreciate that and I now recognize you for any opening statement that you may have.
▶ 0:07:34Thank you, Mr. Chairman. And good morning to you all. Let me start uh by offering my condolences uh to you, to this body on the passing of your colleague Senator Lindsey Graham, a statesman and a patriot whose service elevated and strengthened the country.
▶ 0:07:55Chairman Mast um uh, and distinguished members of the House Foreign Affairs Committee thank you for inviting me to testify today on the fiscal year 2027 President's budget request for the Department of Commerce's Bureau of Industry and Security. BIS's mission is to safeguard the crown jewels of the American economy, our critical technology and supply chains.
▶ 0:08:20Under the leadership of President Trump and Secretary Lutnick BIS is fulfilling this mission more strongly than ever. Consider the enforcement of our export Before the Trump administration, the penalties for export violations were Licenses were being rubber-stamped even for sensitive technologies and entity-listed companies.
▶ 0:08:43Too many in the business community viewed export control as a cost of doing business, not a reason to change All of that has changed dramatically under this administration. From 2024 to 2025, the total monetary penalties imposed by BIS increased more than 18-fold. From 16 million in 2024 to 324 million in 2025.
▶ 0:09:08And in 2026, we've already doubled the amount of administrative penalties imposed compared to 2025. BIS's enforcement unit has closed out several landmark cases within the past year. BIS announced a $252 million settlement with Applied Materials on a case involving the illegal transshipment of semiconductor manufacturing equipment.
▶ 0:09:31A $95 million administrative penalty on Cadence Design Systems in a case involving the illegal export of semiconductor design software, and a settlement agreement totaling $36 in penalties in a Bosch case involving the diversion of microelectronics and automotive software to a company on the entity list.
▶ 0:09:51In addition to these civil resolutions, our agents, BIS agents, helped obtain indictments charging three individuals in a multi-billion dollar scheme to divert servers containing advanced semiconductors through through Southeast The problem now is that our resources are spread too thin, and we need more resources. Our enforcement officials are overburdened.
▶ 0:10:15They have more cases and more leads than they can handle, and more than their peers at more than their counterparts at peer law enforcement agencies. BIS's enforcement unit should be orders of magnitude larger to safeguard critical technologies more effectively.
▶ 0:10:33And that's why the president's budget requests an increase for BIS's enforcement unit from $122 million in fiscal year 2026 to $301 million in fiscal year 2027, a 147% increase. This would enable the enforcement unit to increase from 299 positions to 669 It would also enable BIS to increase the number of enforcement officials stationed overseas from 25 to 65.
▶ 0:11:02This appropriation would be a historic step toward transforming the agency to handle the national security mission that we have more effectively. The president's budget also seeks smaller but important increases in appropriations for BIS's export administration unit, which handles licensing and supply chain investigations.
▶ 0:11:22This includes an $11.7 increase and 38 positions to add specialized engineers and technical experts to support enforcement by performing the technical assessments and licensing determinations that form the basis for enforcement actions. It also includes an additional $20 million to support BIS's Section 232 program to revitalize industries that are critical to national security. President Trump has revolutionized Section 232.
▶ 0:11:53In his first term, he used it to address the security threats posed by foreign steel and aluminum imports. And now in the second term, uh BIS is using Section 232 more aggressively than ever, resulting in a manufacturing renaissance that's rebuilding our domestic industrial base, hiring American workers, and strengthening our national security.
▶ 0:12:13BIS has launched more than a dozen investigations, and the president imposed tariffs on steel, aluminum, copper, pharmaceutical, semiconductors, autos, trucks, and lumber with other sectors under under consideration. Though we've instituted tariffs to address the national security threats, the benefits to the American people are enormous, and the administration has leveraged the authority to spur hundreds of billions of dollars in new investment in these critical supply chains.
▶ 0:12:40New factories are springing up across the country, including crude steel-making capacity, aluminum plants, reshoring auto factories, massive new investments in semiconductor and pharmaceutical production, um and an additional $20 million investment uh in the group at BIS that administers Section 232 is well worth the investment. Let me now turn to the Office of Information and Communication or OICTS.
▶ 0:13:08This office is responsible for mitigating foreign adversary threats in the supply chain. OICTS is implementing today implementing an industry-wide regulation, the first of its kind, to limit foreign adversary presence in supply chains. It's It's the Connected Vehicles Rule. This rule prohibits foreign adversary software in US passenger vehicles starting in model year 2027, which is what's being built now.
▶ 0:13:36It also prohibits foreign adversary connected hardware in US passenger vehicles starting in model year 2030. BIS's enforcement of this rule has already made Americans safer. Following discussions with BIS, several auto companies have decided to excise foreign adversary technology from their US product offerings. These companies understand that BIS tolerate a risk of sabotage or data exfiltration in the cars that everyday Americans drive and they have changed their business plans accordingly.
▶ 0:14:05OICTS is currently heavily focused on implementing the connected vehicles rule uh correctly and in the future we expect the administration of this rule to become more routinized and as that happens BIS OICTS will consider creating new regimes for other sectors that also have risks to their supply chains. The overall we expect the volume of work at OICTS to remain steady from fiscal year 26 to 27 uh and that's why the president's budget doesn't request an increase uh for OICTS.
▶ 0:14:38I look forward to continuing the great work the great collaboration that BIS has done with this committee um and working with you all to make sure that BIS has the tools and the staff and the resources that it needs to keep America uh and to sustain our uh national and economic security. Thank you and I look forward to answering your questions.
▶ 0:14:58Thank you Under Secretary Kessler. Uh I will now recognize myself for questioning and we will alternate between Republicans and Democrats uh for questioning throughout this hearing. Uh I want to begin by this. Uh you talked about the increase for the BIS budget. I think we could easily see the need to double it beyond the the number that we're we're doubling it to right now uh because of uh the the nature of the threat that is going on right here and the importance of this to the globe.
▶ 0:15:25So, we know for a fact China is getting its hands on our most advanced AI technologies. It's It's not hyperbole. China has smuggled in thousands of Blackwell chips. They've smuggled them and they work to smuggle them every day. It is accessing perhaps hundreds of thousands of Blackwells through data centers in places like like Singapore, Malaysia, Thailand.
▶ 0:15:47They are working to do this on a daily basis and other countries and they're still they have access to technology from the US and its allies to make its own chips and they're trying to get that access through other allied countries on a daily basis. These are what China is working at every single day. That is the the way in which they present the threat to your office.
▶ 0:16:12That is why President Trump issued the America First Trade Policy Memorandum and the AI Action Plan where he told BIS close loopholes, strengthen export controls on chip making equipment and it has been a year since that commander's guidance and I would like an update on this from you on on where we're at. So, just number one, have you aligned allied controls to US controls and tell us about your use of the foreign direct product rule in doing so,
▶ 0:16:41Absolutely. Thank you. you know, we at BIS, we have made significant progress on several of the areas that you mentioned. Um you know, when it comes to export controls for example on semiconductor manufacturing equipment, one of the most significant changes that we've made is to start applying the appropriate level of scrutiny to export licenses involving that technology and export licenses involving exports to entity listed You know, one of the things that surprised me when
▶ 0:17:11I was in my office is to learn that the prior administration had granted thousands of export licenses to entity listed
▶ 0:17:22Here's the problem. Can you get to 100%?
▶ 0:17:25I'm sorry.
▶ 0:17:25Can you get to 100% enforcement?
▶ 0:17:29Well, that's always the goal and I agree with you that that's the benchmark by which we should be judged. To get to 100% enforcement, we do need additional resources. We are too small of an agency. We know and I testified to the same thing a year ago. We know that we're only capturing the tip of the iceberg.
▶ 0:17:47We have shut down smuggling We have imposed major penalties on those who smuggle and divert our advanced technology, but there's unfortunately there is a lot of illegal activity going on that we haven't stopped yet and we need a massive increase in the enforcement resources to be able to do
▶ 0:18:06much of that illegal activity is through Chinese military end users as you well know. You probably know these companies better than than most members of Congress. You have to deal with them on a daily basis. We deal with 100 other things. Secretary of War Hagel said this stated publicly Alibaba, Tencent, CXMT, YMTC and more. They work directly for the Chinese military. So what does that mean for BIS policy when he identifies them as working directly for the Chinese military?
▶ 0:18:37How do you qualify them as military end users so that we don't sell them that
▶ 0:18:43Look, we have to be realistic. Whenever we are thinking about exports into China, I think we all recognize that the government has significant control, exercises significant control over over companies in the private sector We don't have any illusions about that. So we have to be very careful when we allow exports to there or to other country group D countries.
▶ 0:19:06Do you see those companies that I just listed as Chinese military end users? Alibaba, Tencent, CXMT, YMTC.
▶ 0:19:14I see those companies as playing an important role in in the strategy of China to develop its indigenous
▶ 0:19:22Chinese military? We know that Chinese has a a fusion civil military uh use constantly. Any place that they can fuse civil and military, they do.
▶ 0:19:31So, I believe these companies are on the 1260 H list. YMTC is on the entity list. Um so, you know, uh obviously these
▶ 0:19:39Alibaba and Tencent?
▶ 0:19:40Also on the 1260 H list, right?
▶ 0:19:42So, these are Chinese military end
▶ 0:19:44Well, military end user is a technical designation under our rules.
▶ 0:19:48Do you assess them to be Chinese military end users like the Secretary of War does?
▶ 0:19:52I completely agree with the Secretary of
▶ 0:19:54That they are Chinese military end
▶ 0:19:56I will I will go and look at his statement and see exactly what he said. Um you know, look, the um these companies obviously
▶ 0:20:03that Alibaba, Tencent, CXMT, and YMTC work directly for the Chinese military.
▶ 0:20:11Then I'm sure that that is correct.
▶ 0:20:13My time has expired. Ranking Member Meeks, I believe you wanted to give a statement and ask your
▶ 0:20:20Yes. And first, I just want to welcome to the committee a Representative Debbie Wasserman Schultz, Representative Bell, and uh Representative Duncan. uh Pocan, excuse me. Pocan to the Uh and glad to have you here. Uh let me thank you uh Chairman for hosting this critical hearing under Secretary Kessler. Uh I want to welcome you uh and thank you for appearing today.
▶ 0:20:46And also thank you actually you one of the individuals from the administration have come to my office several times to talk and try to work things out. And I want you to know that I do really appreciate that. Uh and uh and hopefully that we will continue. You know, of course, I've uh got a lot of questions for you. And uh since the last time uh you testified in front of this committee, which was nearly a year ago. Uh, I think much has changed and you are here to, I guess, to justify uh, the president's budget request for BIS.
▶ 0:21:16That requires us to examine BIS's record over the past 18 months, uh, and answer the many questions before this committee and provide the American people with a clearer accounting of what BIS has accomplished and where it has fallen short. Uh, I've been deeply concerned by the Trump administration's mismanagement of export controls.
▶ 0:21:38Rather than treating export controls as one of our most important national security tools, the president has turned them into a bargaining chip in a broader negotiations with China. And as a result, the administration has issued virtually no significant new export control rules with respect to China and Russia, despite being in office for a year and a half.
▶ 0:22:01Instead, it has weakened existing safeguards, including by approving licenses for advanced AI chips destined for China. Moreover, the administration hasn't added a single entity to the entity list since last October.
▶ 0:22:17And according to CSIS, this marks the longest period of entity list inactivity since 2008, when export controls was nowhere near the center of our national security The Biden administration added nearly 1,600 entities to the entity list.
▶ 0:22:34President Trump and Secretary Ross and have added only 140 in a year and a Are we supposed to believe that Russia and Chinese companies are no longer trying to acquire sensitive technology for military and other malign, uh, In your testimony, you mentioned the need to codify the Office of Information and Communications Technology and Services, also known as OICTS.
▶ 0:22:59Yet, many of the China actions and rules uh, that office was developing have been shelved or rejected. As a result, the office has not unveiled a single new rule during the second Trump The policy [snorts] paralysis and negligence at BIS got so bad that Chairman Mass was compelled to organize a 24-bill export controls markup in That raises an obvious question.
▶ 0:23:29Why should Congress drastically increase the budget for an agency that has failed to fully use the authorities it already I hope you will be able to answer that question today. But it's not just the policy that concerns me.
▶ 0:23:45Under Secretary Lutnick's watch, BIS has become less effective and less transparent, which have been unacceptable delays in license reviews, which are harming our economy and technology leadership. Engagement with industry is at an all-time low, making compliance and cooperation difficult.
▶ 0:24:08Just last month, BIS had to issue guidance reminding companies that it will still that it was still enforcing its own rules because many companies uh were no longer sure. Major policy actions are increasingly being implemented through private letters to individual companies rather than transparent rules that apply to everyone.
▶ 0:24:32Legitimate questions about consistency, accountability, and whether export controls are being applied fairly. And we have seen years of expertise and now and know-how pushed out or leave voluntarily because of mismanagement and declining morale within the agency. The bottom line is simple. BIS is not meeting its missions as I can see it under Secretary Lutnick's leadership.
▶ 0:25:02BIS has dropped the ball on rule making and entity list designations while focusing entirely on enforcement. And enforcement is indispensable. Let's be clear about that. But it is far less effective when the underlying rules are outdated and in effect ineffective. The president's budget request largely doubles down on that imbalance by emphasizing enforcement while doing little to address the underlying policy deficiencies.
▶ 0:25:31And so I've long been an advocate for more funding and resources for BIS. But before Congress provides a significant funding increase, this administration must demonstrate that BIS is effectively using the authorities and resources it already has. So I look forward to our discussion today and I'll go straight to questions.
▶ 0:25:55So I want to know and my first question to you is and is how many licenses has BIS approved for the H200 and equivalent chips sales to China?
▶ 0:26:09Thank you Ranking Member Meeks. That information is confidential but we have provided disclosures to the committee that list the license applications for the H200 and its equivalents that we've received and the status of each. So I just refer you to our confidential submissions.
▶ 0:26:29Okay. So you have provided your staff has provided it but it's it's it's confidential or classified. Is that what you're saying about Is that that what you mean?
▶ 0:26:36It's not classified?
▶ 0:26:38think it's classified. It's
▶ 0:26:39We have it available in the skiff. As of today, have shipments of the H200s or equivalent chips started to China or Hong Kong?
▶ 0:26:54To my knowledge, uh yes, but very few. And that's something that we provided. We provided an up again and we provided a confidential update recently to the committee on that. there have been shipments, but you say it is not, so we don't know. Do you know how many license approvals have led to the shipment thus far?
▶ 0:27:20We do. And and again, we've given that information to the committee, um and I'm happy to provide it to you in a confidential setting.
▶ 0:27:27Again, okay. Um but we cannot the American people is all confidential uh and or in the skiff.
▶ 0:27:35That's because of the
▶ 0:27:35be transparent.
▶ 0:27:36Well, that's because of the statute and the rules around uh disclosing, publicly disclosing information related to license applications. There are restrictions on my and my agency's ability to publicly disclose information about license applications, but we do uh try to make it uh available to the committee and we have done that.
▶ 0:27:59Um but I think for the American people, the bottom line is uh very few uh shipments against licenses for H200s and equivalents have taken place. It's a very small quantity of chips. Um so, uh it's it's it's it it's it's trivial. Trivial amount.
▶ 0:28:17Well, I just think I will take advantage of the chairman says it's in the skiff, I will do that, but I would hope that we could be transparent to the American people so that everyone would know. So, you know, per the Export Administration's Regulations, uh the uh the Department of Defense, Energy, and State have the authority to review any license application submitted under the EAR, but every single H200 license BIS has approved to date.
▶ 0:28:45So, whatever that number is, they have uh the authority to review license the the and the applications that's been So, my question to you is, did all three agencies formally review and sign off?
▶ 0:29:11all three agencies, all four agencies, um review license applications for the H200 and provide their recommendations. so, that's that's the process that we
▶ 0:29:24So, all three checked off on it?
▶ 0:29:27Well, I'm not going to comment on the positions that agencies took in a deliberative context, um but all the agencies review all the H200 and equivalent license applications that we receive.
▶ 0:29:40Well, shouldn't we know because we I need to know and I think the American people need to know whether any agencies opposition, for example, was overridden or was any agency simply never given the opportunity to review. You know, we need to you know, this is we have oversight responsibilities here in the United States Congress. Uh and so, that that's our jobs.
▶ 0:30:00And so, to not know whether or not uh all three agencies checked off on this as required by law um and or whether or not they had the opportunity to review is something that we need to know. Can you give us an answer to that?
▶ 0:30:15Well, I I'm I'm testifying now that all agencies have the opportunity to review these licenses um and also that uh the positions and the views that each agency takes in the context of an interagency discussion is deliberative and I'm I'm not going to comment on it.
▶ 0:30:31Again, lack transparency. Let me just ask this last Last month, the Department of Defense published its latest Chinese military companies list. Interestingly, since December, BIS has approved licenses to sell H200 chips to at least four companies that are on that list, including three that were just added last month by this very administration. Can you explain why BIS approved licenses for H200 sales to companies that the Department of Defense deems to be Chinese military companies?
▶ 0:31:03We grant uh H200 licenses based on a rule that we issued in January, which explains the criteria that we examine for reviewing these licenses on a case-by-case basis, rather than a presumption of denial.
▶ 0:31:17And the applicant has to meet rigorous national security requirements, including um making sure that the chips actually perform at the level that they're supposed to perform at and not higher, getting inspections, uh domestic availability of comparable chips, and so on. Um so, that regulation has the basis for the decisions that we make in any particular case.
▶ 0:31:41Mr. Chairman,
▶ 0:31:41And you know, there have been Just to be clear, I mean, there are cases where we approve the license applications we receive, there are cases where we deny um the license applications we receive. So, we examine each one closely on a case-by-case basis.
▶ 0:31:54Mr. Chairman, I before I yield back, I'd just like unanimous consent to submit into the record the Department of Defense's 2026 list of Chinese military companies that was published on June 8th, 2026 and the Federal Register notice from January.
▶ 0:32:09Without objection.
▶ 0:32:11I yield back.
▶ 0:32:11Representative Biggs is recognized.
▶ 0:32:15Thank you, Mr. Chairman. Under Secretary Kessler, thank you for being here today, and thank you for your leadership at BIS in putting American national security and our American workers first. The connected vehicles rule is exactly the kind of bold action that President Trump promised the American people.
▶ 0:32:35Using our full authority to keep the Chinese Communist Party out of our critical infrastructure and out of our It should terrify every single American to think that Beijing could remote remotely access or even control cars on our roads.
▶ 0:32:53And I want to commend BIS's recent decision to deny the EV company Polestar, which is owned by Communist China's Geely, authorization to sell model year vehicles in our country. I raise this because it matters directly to my home state of South Carolina.
▶ 0:33:14The Polestar 3 is built in Charleston in the same plant that builds Volvo And Volvo has been owned by Geely since BIS approved Volvo to keep selling here while denying Polestar.
▶ 0:33:32I don't doubt there are good reason for that distinction, but South Carolina auto workers, the suppliers, and dealers, they have naturally been asking what separates a yes from a no. And I think giving them the clarity would help BIS's mission. So, I have three questions.
▶ 0:33:51The first, even in general terms, what separated the Volvo approval from the Polestar denial so that our manufacturers have a clear roadmap to
▶ 0:34:04Thank you. Thank you very much for the Congresswoman. Uh For any So, the the there's a general prohibition on the import of technology, software, um starting in model year 2027, um that has foreign adversary technology.
▶ 0:34:24And we were able to reach um an agreement, a specific authorization, with Volvo that we believe uh is very strong, very robust, and effectively mitigates the national security risks that we believed otherwise would have existed. You know, we just were not able to reach that kind of agreement with with other companies that we have and that's the difference. The details of those are confidential.
▶ 0:34:56Thank you. So secondly, are there other China-linked automakers currently under BIS's review through the same process?
▶ 0:35:08There there have been multiple companies in similar situations that are before us, both automakers and suppliers.
▶ 0:35:20Okay, [snorts] my third question. As South Carolina continues to grow as an automotive manufacturing powerhouse, how is BIS making sure this rule keeps the Chinese Communist Party out of our supply chains while ensuring that America wins the future of the auto
▶ 0:35:41Well, you know, I think it's about creating and standing up this strong new rule and then enforcing enforcing it effectively and that's exactly what our office our ICTS office is doing right now. This is a whole new program, a first of its kind rule under this authority.
▶ 0:35:58There's never been this type of program established under this legal authority and you know, we're setting up right now the enforcement apparatus to make sure that importers and dealers and manufacturers all adhere to the rules that when we enter into an agreement like the one that that you that that I referenced with Volvo that the terms are abided by.
▶ 0:36:21And so you know, I think strong enforcement of this rule and continuing to work closely with industry is how we make sure it remains
▶ 0:36:32Okay, thank you. Mr. Chairman, I yield
▶ 0:36:35Gentle lady yields back. Representative Keating, you are recognized.
▶ 0:36:39Thank you, Mr. Chairman. Kessler, are you familiar with the UAE-based company G42?
▶ 0:36:48I am.
▶ 0:36:49Are you aware of the chan- who the chairman of that G42 is?
▶ 0:36:55I am.
▶ 0:36:56Who is that?
▶ 0:36:56I believe it is I believe it is Peng Xiao.
▶ 0:37:00Sheikh Tahnoun, in other words.
▶ 0:37:02Sheikh Tahnoun.
▶ 0:37:03Yeah. Are you aware of his other position? Sheikh Tahnoun's other position with UAE government?
▶ 0:37:10I'm aware that he has a position with
▶ 0:37:12And what is that position?
▶ 0:37:13I don't know offhand.
▶ 0:37:14He's national security advisor. So, are you aware uh also in the course of uh export controls, I mean, the very powerful semiconductor chip uh deal that was done in May.
▶ 0:37:30Uh did you have other discussions uh as a member of the administration with other members of the administration on that change for those very powerful, sensitive computer chips that we were worried about getting in the hands of the Chinese? You must have had some discussions with other members of the administration.
▶ 0:37:48All All major decisions that BIS makes, we make in consultation with
▶ 0:37:54So, who did you discuss that with in the administration, sir?
▶ 0:37:58Which decision are you asking about?
▶ 0:37:59About the approval of to G42 and Sheikh uh about these computer chips that are great security concerns and following in the hands of being followed in the being in the hands of the Chinese. Uh who made that decision? Who made that decision? when when the Commerce Department makes a consequential decision
▶ 0:38:21So, you're aware, right? Who Did you uh any discussions at all with Steve Witkoff, who's the envoy in the area? Uh certainly he would be someone that would have it you'd have a discussion with if you were dealing with G42 uh and dealing with that area since he's the envoy in the Middle East.
▶ 0:38:39I'm not going to comment.
▶ 0:38:40Why not?
▶ 0:38:41I'm not going to comment.
▶ 0:38:42I'm not going to comment on discussions
▶ 0:38:44Why not? It's very relevant, sir.
▶ 0:38:46I'm trying to answer your question.
▶ 0:38:47You just said you're not going to comment. I'm asking why.
▶ 0:38:51My answer is that I'm not going to comment on discussions that I had or didn't have with any particular
▶ 0:38:56Good, I'm not asking you to comment on the discussions. I'm asking you who you discussed it with. Did you have a discussion with Steve Witkoff?
▶ 0:39:02What I've
▶ 0:39:03I don't care what you said to him. First, answer the question. It's no security risk. It's no confidentiality. He's the envoy in the Middle East. Did you have a discussion with Steve
▶ 0:39:12Respectfully, sir, I'm I'm trying to answer your question.
▶ 0:39:14No, you're not. You're trying to avoid it, frankly.
▶ 0:39:16I'm I'm trying to I'm trying to tell you uh you know, I'm not going to disclose the content of the
▶ 0:39:23I'm not asking you the content, sir. First, I asked you, did you have the conversation? At least you can share that with us.
▶ 0:39:28I'm not going to provide a chronology
▶ 0:39:30no, no. I didn't ask for chronology. I asked you, did you have a conversation with Steve Witkoff?
▶ 0:39:35Respectfully, sir, uh I'm I'm not
▶ 0:39:38respect here if you don't answer the question, sir.
▶ 0:39:41I'm trying to tell you that I am
▶ 0:39:42No, you're not. You're trying not to answer. So, tell me the basic question, did you have a discussion with Steve Witkoff? That's pretty simple.
▶ 0:39:50going to provide an inventory of the
▶ 0:39:51I didn't ask you for any inventory. I didn't ask you for content. I asked you a pretty simple question. Did you have a discussion with Steve Witkoff?
▶ 0:39:59I believe that you're asking for information about
▶ 0:40:02Oh, no, don't believe what I'm asking. Answer what I'm actually asking.
▶ 0:40:06I don't want to provide
▶ 0:40:07want to provide. Of course, you don't. Tell me the simple answer. This is so
▶ 0:40:13Yeah, I'm not going to provide
▶ 0:40:14covered by any confidentiality. It's not anything. I'm not asking the content. I'm asking for an answer.
▶ 0:40:21You're asking about deliberations that last week.
▶ 0:40:23not asking about deliberations. I'm simply asking you had you had the con- a conversation with Steve Witkoff about this. I'm not asking you content, deliberations. You can't answer that
▶ 0:40:35Look, I've I've given you my answer. I'm
▶ 0:40:36No, you haven't, sir. How can you say you've given me the answer? There's nothing more fundamental or simple that I'm asking you. Did you have a conversation with Steve Witkoff about
▶ 0:40:46I'm not going to provide an inventory of
▶ 0:40:48aren't you doing that, sir?
▶ 0:40:49Because it's deliberative. It's
▶ 0:40:52It is not deliberative. If you had a
▶ 0:40:55I'm not going to provide an inventory
▶ 0:40:56You're evading the answer, sir. Why are you evading the answer?
▶ 0:40:59Because it's
▶ 0:41:00Why are you evading the answer? Could it be the conflict of interest is there with Witkoff and World Financial and the Trump administration, which the president personally benefited by? Could it be that? Could it be a fear? Are you afraid to give an answer, sir?
▶ 0:41:13I'd be happy to give you an explanation.
▶ 0:41:15happy to give me an answer? I can't believe that that you won't even admit if you had a conversation with Steve Witkoff about this. Mr. Chairman, I yield back.
▶ 0:41:25Representative Davidson is recognized.
▶ 0:41:28Uh thank you, Chairman. Thank you, uh Mr. Kessler, for being here today and for uh just providing clarity about the the role the administration's doing to protect our national security and uh I appreciate you doing that. Um you know, one of the uh things that we spend a lot of energy on is getting an export control framework together.
▶ 0:41:46We worked you know, across not just State Department, but Commerce, Treasury, um you know, this is kind of a whole of government effort and you know, the budget needs to increase uh to be able to accommodate those kinds of roles. Could you give us an update on how that's going and how important it is to not only create the authorization, but to fund the office that you guys need to provide this oversight?
▶ 0:42:07Well, absolutely. Well, enforcement is really at the heart of the work that BIS does. Enforcement is the reason that uh you know that the export control regime is effective. Enforcement is what creates the incentive for companies to comply and it's what keeps the technology that we all care about out of the hands of our adversaries.
▶ 0:42:28Now, um you know, we have surged enforcement um thanks in part to the to the additional appropriations that Congress has provided for fiscal year '26. Um we've we've we've hired a huge number of people just this year already, around 70 people. Um and we plan to continue hiring throughout the year.
▶ 0:42:51But as I mentioned in my opening testimony, I think that BIS ought to be orders of magnitude bigger uh to effectively fulfill its enforcement mandate. And we know that our enforcement officers are overburdened. We know uh that there is illegal activity happening um that we're not able to stop because of the paucity of resources.
▶ 0:43:11Uh and so we're asking Congress, the president's budget asked Congress for an additional significant increase in in resources so that we can uh continue transforming BIS into an enforcement powerhouse.
▶ 0:43:22Thank Thank you for that and thanks for the additional explanation. And look, one of the things we want to do is make sure we have bright line clear things so there's not some unambiguous uh standard out there that it's not regulation by enforcement but companies are clear on what they're supposed to do. Toward that end, I've passed uh working to pass a bill, the Biological Intellectual Property Protection Act that would restrict the export of US intellectual property and sensitive information related to synthetic bio- biology uh to foreign entities like we know this has happened in the past.
▶ 0:43:52We're concerned that it could happen in the future. Um you know, how important is it to have bright lines? Does that make enforcement easier? Well, it sounds like it would be helpful and I'm happy to take a look at the legislation and and work with your office on it.
▶ 0:44:05Yeah, thank you for that. And you know, one of the early enforcement actions really has been AI, and one of the most important technologies we're trying to restrict is related to computing, whether it's quantum computing, uh chips, uh technology, but artificial intelligence is uh a bit of a an arms race of sorts with China, and you know, sort of a rapid enforcement against a version of Claude happened already.
▶ 0:44:29So, I know that the details of those uh you know, discussions and negotiations are um confidential or classified generally on some of these things. But, you could you go into the kinds of things that are considered as you're trying to take a an urgent enforcement action like that?
▶ 0:44:46Yeah, absolutely. Um you know, one one thing that we expect of companies that are involved in developing frontier models is that that they follow the procedure and the policy that's set out in the president's executive order uh on AI from June. Uh and um that's an important step uh both in ensuring the security of the models and in instilling confidence uh in the government that if there are vulnerabilities that we uncover them, we know about them, and we're prepared to deal with them.
▶ 0:45:16you know, the government uh has several bodies that work with companies to evaluate the security of frontier models, including Casey at the Department of Commerce, not in BIS, but uh it's at the Department of Commerce. Um and so, we encourage companies developing these types of models to work with us closely.
▶ 0:45:34Yeah, thank you for that. And then, you know, I think one of the concerns a lot of my constituents have is their data, you know, private information. frankly, they're concerned about our own government collecting their information. They're concerned about companies monetizing and harve- harvesting it. Uh you know, some of that's outside of your control. We need a domestic privacy bill.
▶ 0:45:54But, when you look at crossing the border, how are we how are we protecting Americans' um sensitive personally identifiable information, uh geolocation data, all kinds of things that you can buy from data brokers. How are we uh limiting the export of that kind of
▶ 0:46:11Well, um you know, some of that some some technical data is controlled, so it falls under the export controls, and that's one thing that we're doing. And there are other authorities, too, for example, that the Department of Justice um to limit the export of sensitive personal data. Um so, there's a variety of legal tools both inside and outside BIS that we can
▶ 0:46:32All right, thank you. My time's expired, and I yield back.
▶ 0:46:37Representative Bera.
▶ 0:46:38Thank you, Mr. Chairman. Um on behalf of my colleague from Massachusetts, I'd like to ask unanimous consent if I could enter two articles um into the record. Thank you. Um thanks for being here, Secretary Castler. Um You know, I have the the privilege of serving on the Intelligence Committee as well. Um and one thing that we think about, you know, let let's use um um Anthropic as as an example.
▶ 0:47:02You know, I think Anthropic did the responsible thing as a as a company when they realized some of the powerful tools that were um becoming available, coming to the government, you know, working with with folks to to make sure there was responsible application of these tools.
▶ 0:47:19within um BIS um and within Congress, one thing that we think about with the frontier labs that are out there, with how rapidly these technologies are emerging, do you have the tools or do we have um the authorities in place that compel these companies to come to us as the the federal government um to say, "Hey, here's here's a tool that we may not want our adversaries to get a hold of.
▶ 0:47:49We may not actually want our our own public to get a hold of yet. We don't fully understand." Um Um, does that make sense? You get what I'm thinking And this is a place where I think the administration, not in a partisan way, but in a national security way and a way of protecting the public because we see how fast these technologies are evolving.
▶ 0:48:08Right. Well, thank you for the question. You know, I I I think that we showed the world that we do have the tools in the in the case of Anthropic, right? We had national security concerns and we responded quickly to address them and to control the dissemination of the model. And we worked with Anthropic to address our concerns and Anthropic responded admirably. And we, you know, and after too much time had passed, we lifted the controls.
▶ 0:48:38Um, and uh, ensure that they continue to work with us as they develop guardrails and and make sure that their models are
▶ 0:48:45I applaud Anthropic for doing the responsible thing and the right thing and and and working um, together with What I worry about though, will that next frontier lab, will that next company that comes across a very powerful model or powerful tool do the right thing? Um, I hope they do. But, you know, what are the tools and things that we should be thinking about as the federal government to create a compelling narrative that says, "Hey, wait a minute. You know, you have to work with us here on this."
▶ 0:49:14Absolutely. Well, so I think, you know, as as the executive branch, we work closely with all the frontier labs, all the American frontier labs um, and encourage them to cooperate with us closely as they develop and prepare to release these frontier models. Um, we work with them to assess the security risks. Um, and again, that's done through parts of the government like Casey which I mentioned, uh, through the White House.
▶ 0:49:41Um, and and they know now, uh, that if if there's a company that that isn't following the rules, isn't following the pathway that's set out in the executive of from June, that we have tools at our disposal to limit the dissemination of the models.
▶ 0:49:55I mean, I guess I one thing that I would encourage um the administration would to to work with Congress cuz I do think it would be important for us to put those guidelines in place um put kind of the code of conduct. Again, I do worry about how quickly things are evolving.
▶ 0:50:13I do worry about whether these models get in our adversaries' hands, you know, again you do, you know, coming from California, you see a lot of the innovations that the frontier labs are doing and I I don't want to just um hope that each lab will do the right thing. I want to have a compelling case that says, "Hey, here's the guidelines. Here's the things that would compel you to come to the administration and compel you to come to Congress to
▶ 0:50:44Yeah, I mean, look, I I agree with you and I agree with the concern that you're Um this is obviously a rapidly evolving landscape. It's a it's a new world. and we're developing. We've used and we're developing new tools to encourage cooperation with the government and we're also um you know, developing the framework for frontier labs to cooperate with the government and to make sure that our concerns are addressed. So
▶ 0:51:09And again, I'm I I guess I would argue and I I think for this committee as well as, you know, um for Congress, that we ought to work with the industry. Again, that I expect most people want to do the right thing. We ought to work with the administration. Shouldn't be you know, a partisan issue. It should be an issue of how do we protect our intellectual property, our advantages, but also our national security and and safety. So, again, I would look forward to working with your um office as well as others to try to create those guardrails and
▶ 0:51:38I'd be happy to.
▶ 0:51:39Thank you. I'll yield back.
▶ 0:51:40Representative Issa.
▶ 0:51:42Thank you, Chairman. Mr. Gessler, uh I appreciate that you've been uh uh very available for conversation and and and correspondence. so, I hope you'll take my uh my opening here as uh as positive. Uh first of all, would it surprise you to know that during the four years of the Biden administration Applied Materials grew by 6%? LAM Research shrunk by 18%.
▶ 0:52:13Well, the Chinese makers, including grew by 93%. And ASMIC, AMEC, grew by 254%. Are those figures that would uh you'd find credible and uh not surprising?
▶ 0:52:30I find them credible.
▶ 0:52:32Would it Would you find it credible that it hasn't really reversed by very much that those Chinese institutions continue to grow by double and triple digits while American companies find themselves still behind the power curve on regating their volume and dollar leadership?
▶ 0:52:50Right. I find that credible as well. as we look at this, uh and by the way, Mr. Chairman, I'd like to put in for the record, with the unanimous consent, an article from Bloomberg, "Secretative or Secretive Chinese Chipmaker Is Built to Dodge US Curbs."
▶ 0:53:08Without objection.
▶ 0:53:09Thank you. Uh Your Your title is an amazing one. First of all, you're part of the Department of Commerce, meaning that your job is to promote commerce. Bill uh business, industry, and security is an interesting two-part obligation, isn't it? Both to promote our our industry and protect it. And then, the security side of it, uh uh in your case, primarily on exports,
▶ 0:53:34That's correct.
▶ 0:53:35And more broadly, commerce is dealing with both exports and imports from a standpoint of protecting industry.
▶ 0:53:42So, for the record here, is one of the challenges that you face that we have to support through our funding and authorization, the balance between our industry, which is a global industry when we look at chip production, chip and the and the products that allow for those making, they cannot be global leaders if they are cut off from substantially half or more of the market. Is that a correct?
▶ 0:54:10Well, I think it's important for It's important for the United States and for the Department of Commerce to support and protect the industry that makes the tools that make the semiconductor
▶ 0:54:22I I appreciate I appreciate that and and that's why I brought up those companies. if we take for example Qualcomm in my home district, Qualcomm lost in the 5G race. China won. Wasn't because they didn't work hard, it was because China owned the market for the utilization. If they had a chip that worked, they got first dibs on it. That balance is one that we failed in.
▶ 0:54:51In other words, many of our chip makers find themselves with only one market to sell through to the global market, and that's China. Meaning that their chips have to pass from here through China to get to Europe and the other countries because the products are substantially assembled in China. That's a fair statement, isn't
▶ 0:55:15Look, I You used the word balance, and I agree with you that it's important to find the right balance, but we want to make export markets accessible for our companies, and we also want to make sure that we respect national security. And in this case, we're talking about a set of technology you know, talking about a set of technologies that are very sensitive from a national security
▶ 0:55:35Well, but here's my conundrum, and it's one and I have spoken about before, but I want to make sure we put it in the You have a average of 66 days or so for approvals, and that's that sounds pretty laudable, about 2 months between application and approval. However, the companies that we've been talking about, the chip manufacturers, the manufacturers for the chips, uh the uh Nvidia type companies and beyond, they don't find 66 days.
▶ 0:56:04In some cases, they are un undesignated, and they are part of the I don't have an answer ever. So, how do we go from a good average, which includes, you know, somebody making gun parts, uh all the possible controlled items, and get down to the global leadership areas?
▶ 0:56:27Quite frankly, the one, two, three, and four, and five trillion dollar companies in which America dominates, however, China assembles. How do we How do we get it to where it's 66 days for those companies? Because I'm concerned that one thing we know is they're not getting the quick answers. In some cases, they're not getting the approvals at all or the denials.
▶ 0:56:51Well, that's that's true. So, the, you know, in the vast majority of cases for licenses that we handle, uh approvals, decisions, and approvals come quickly. As you said, you know, it it could be as little as 2 weeks, uh it could be a month or two. And again, that's the vast majority of cases that we handle.
▶ 0:57:12One of the changes that I've made, and one of the changes that I committed to make when I was going through my confirmation process, was to stop the rubber stamping of licenses that involve serious national security equities. As I mentioned before, under the prior administration, um there were thousands of licenses granted to entity-listed companies, and I think that's not the outcome that uh the members of this committee expect to And so, I have been BIS on you know, under this administration has been applying more scrutiny to those
▶ 0:57:43licenses where there are national security equities. And I think that that's the that's the right outcome. Um so, that's that's how that's how the licensing process is working now. And again, I think that it's it's entirely appropriate then when that when there are serious national security equities, we take a close look. We would involve technical experts within BIS. Um we would make sure we would talk to the companies, make sure that we understand from the company's perspective what the reasons might be for granting an export license application. And so, we're very
▶ 0:58:14Thank you. And thank you for the extra time, Mr. Chairman. I yield back.
▶ 0:58:16Representative Kamlager-Dove.
▶ 0:58:19Secretary Under Secretary Kessler, thank you for appearing today before this committee and for meeting with me 2 weeks ago. You are charged with leading one of our most important national security agencies at a critical moment in world history as AI technology transforms society, and that is why your job is so important. Restricting the sale of our most advanced AI chips to China is a national security priority.
▶ 0:58:50Would you agree that we must maintain our competitive advantage with AI over
▶ 0:58:59Thank you, good to see you again, Congresswoman, and I appreciated the meeting with you, too. Um and yes, I think it's essential that the United States maintain its lead in AI, um in quantum, uh in semiconductor technology, and all the sensitive technologies um that are going to define uh the economic competition of the 21st
▶ 0:59:22Thank you so much. I too agree with you. So, last week, you and Secretary Lutnick loosened export controls on the United Arab Emirates, making it easier to export advanced AI chips, military equipment, commercial satellites, and spacecraft.
▶ 0:59:39Specifically for this hearing, the rule allows the UAE government and designated companies, including Emirati AI leaders like G42 and Core 42, to access advanced AI chips and servers without needing individual licenses. So, the conflicts of interest between the president, his son, and any dealings with UAE are rampant. Donald Trump Jr. and Eric Trump co-founded World Liberty Financial.
▶ 1:00:08In January 25, just before President Trump was inaugurated, a UAE royal, who is the UAE national security advisor, purchased a stake in World Liberty Financial, reportedly netting Trump 263 million In May of 2025, World Liberty Financial announced that its new stablecoin USD1 would be used by Abu
▶ 1:00:38Dhabi investment firm MGX to finance a $2 billion investment in crypto exchange company Binance. And who is the chairman of MGX? That same UAE royal national security advisor who bought 49% stake in World Liberty Financial.
▶ 1:01:02Now, we have your announcement easing export controls on, you guessed it, the United Arab Emirates, who now stands to gain access to frontier AI chips. So, I have to ask Secretary, have you or Secretary Lutnick had any discussions about the UAE and world with World Liberty Financial or members of the Trump family?
▶ 1:01:37no, not for me. Um uh you know, what I can tell you is that this UAE decision that we made, I believe, is uh an appropriate revision to the export control country groups um that recognizes the UAE's status as a key ally in the region.
▶ 1:01:58Right. Um I I want to I have limited time. I want to appreciate that you said no, not from you. I am curious about Secretary Lutnick and I'm curious to know if there have been any correspondence, any emails, any disappearing signal chats, any meetings that you have seen or you have heard.
▶ 1:02:18And the reason why I ask is because Secretary Rubio came here just not long ago and when asked similar questions, he said, "Well, you, Congresswoman, just don't know where to
▶ 1:02:30So, I want to ask, where should we be looking? Where should we be looking for this information? Because I have to tell you, it smells of conflict of interest. It smells like it could be an illegal pay-to-play scheme and you are an accomplished lawyer. You went to Yale. You went to Stanford. You know about these things and you, I believe, would know an illegal pay-to-play scheme when you see it.
▶ 1:03:00And the reason why I ask these questions is because you are written up, when this will be your legacy, this will be your legacy. And if we, I hope, we do not hear or read about a scheme like we did the mining deal scheme with Secretary Lutnick when it comes to the Emirates and these chips.
▶ 1:03:24And I hope that your name is nowhere on those correspondences or signal chats or meeting dossiers that come up.
▶ 1:03:34I will be proud for the actions that we've taken including with respect to the UAE to be part of my legacy and what the administration does. I think that uh forging closer ties with the UAE, encouraging the UAE to invest in the US tech stack, encouraging it to invest in US AI data center buildout, strengthening the partnership between the United States and the UAE, I think that it is uh one of the um one of the most significant achievements of the administration.
▶ 1:04:03Well, if there's a paid-to-play scheme, just know the Supreme Court protects the president. It doesn't protect you.
▶ 1:04:08you are recognized.
▶ 1:04:12Uh thank you, Mr. Chairman. I want to start uh by asking for permission to enter into the record a letter that was sent to uh Secretary Lutnick October dated October 30, 2025.
▶ 1:04:22Um and uh and Mr. Kestler, in this in this letter uh Chairman Mast, uh Chairman Moolenaar, Chairman Garbarino, Chairman Crawford, and myself uh identify high-risk tech sectors such as advanced medical equipment, industrial machinery and robotics, energy generation and storage, subsea cable systems, and semiconductor manufacturing equipment that need to be uh addressed using ICTS authorities to protect the US market from technology threats.
▶ 1:04:51Um however, since then uh there has been no further action beyond enforcing the Biden era policies. It's my understanding that Secretary Lutnick is excited to use these authorities to protect critical US sectors from CCC uh CCP technologies. Uh has anyone instructed you not to use the ICT uh or I'm sorry ICTS authorities to protect US technology sectors from the from the Chinese?
▶ 1:05:19Look, the decision to use ICTS authorities in any particular case
▶ 1:05:25it would be a decision that the administration makes. Um and we would obviously consult
▶ 1:05:29has nobody has instructed you [clears throat] not to.
▶ 1:05:33And for any decision that we would make, we would consult with other parts of the administration. We make sure we move forward in a coordinated way. Right, we're we're a team. And there are
▶ 1:05:43But now now
▶ 1:05:44now you're not answering what I thought was going to be a fairly simple uh that no one had instructed you to to do that. Um so, now it begs a bigger question as to who is then seemingly or potentially putting up a road block to the use of uh of the ICTS.
▶ 1:06:08I'm not saying that there's a road block and we are using ICTS. As I as I mentioned in my testimony, we're using the authority aggressively in the context of uh passenger vehicles. And you know, what I'm telling you is that we look at it like there are a set of sectors that have um where we're concerned about possible um espionage risks
▶ 1:06:33filtration, data exfiltration
▶ 1:06:36I got it. And this has now taken up half of my time, which I thought was going to take a minute. Uh because I'm not getting what I thought was going to be a simple answer. So, uh you and I talked a little bit about about this yesterday about no rule making that has been attached to this and why that might be the case. Um you indicated uh that you would be willing to work with me on that.
▶ 1:06:59Of course.
▶ 1:07:00Okay. Um this this has to be addressed. We have not I mean from October we you you got the chairman of Intel, chairman of Homeland Security, chairman of China Select, chairman of Foreign Affairs Committee. And I'm just a little old subcommittee chairman who happens to have operational responsibility for It just It boggles the mind that this administration is not their relationships here on the hill uh to be able to address
▶ 1:07:30these things. Um I'm going to I'm going to I have to hit two other things. Um BIS is supposed to close loopholes, not create new ones. I know you and I had some debate back and forth about whether this is a loophole or not about the Black Wells in China.
▶ 1:07:46why did BIS issue guidance in May 31st saying that Chinese companies can keep any Black Well chips that they had whether those were legally or illegally obtained, shouldn't you make be clear with the Chinese that that they can't keep any Black Wells that they may have gotten through either smuggling or other
▶ 1:08:08The guidance that we issued on May 31st clarified and reaffirmed uh a pre-existing policy that had been in place since November 2023. And that is that companies that send advanced AI chips to countries in country group D or companies that are headquartered there but located outside country group D5 that they need to get a license from BIS. And if they hadn't, it would be a violation.
▶ 1:08:37And what the guidance says is they should self-disclose.
▶ 1:08:41And shouldn't there be a little bit more behind that? Okay, I I got to move on I because I I it's This is We are We are This is This is a multiple conversations that we have had that is just a freaking circle that you talk in. And I'm sorry but this is unacceptable. let's let's talk about uh CXMT, which I understand from your conversation with the chairman, you have a less clear view of the standing of their standing within China.
▶ 1:09:11Um we've already seen strict export controls on US companies to sell technology to the to the memory maker CXMT. Our allies don't. Key Dutch company ASML even has a friendship garden, whatever the hell that is, with CXMT. So, it's hard to imagine anything more America last than letting our allies sell to our adversaries when we don't. So, I want to know what are you going to do about it and what's the administration going to do about it?
▶ 1:09:37Well, I agree with you that this is a major concern. Um and you're right that our companies aren't able to sell to Um and uh we're concerned. I'm concerned about the article that you mentioned. And we raised it directly with our uh counterparts in including in the in the Netherlands. And I was in the Netherlands a couple of weeks ago uh raising these concerns. We are We continue to seek alignment.
▶ 1:10:04We continue to insist that the backfilling by foreign companies and foreign countries on export control stop. Um and we're not going to rest until we achieve that.
▶ 1:10:16It doesn't seem that's the case. And with that, Mr. Chairman, I yield back.
▶ 1:10:20Representative Bell.
▶ 1:10:22Thank you, Mr. Chairman and the ranking Effective export controls depend not only on strong laws, but also on a robust US diplomatic and enforcement presence overseas. Today, that presence is under strain. Dozens of ambassadorial posts remain vacant.
▶ 1:10:41And many of our embassies and diplomatic missions are operating with reduced staffing, which limits our ability to engage foreign partners and enforce US policies Export control officers are BIS's frontline enforcement officials They monitor compliance with US export controls, investigate potential violations, and work with foreign governments to protect sensitive
▶ 1:11:12In 2024, BIS approved licenses for over $500 in exports. Yet, BIS had only 11 or 12 export control officers stationed at US diplomatic missions around the world. Mr. Kesseler, how many export control officers do you currently have stationed in China?
▶ 1:11:36In China, there are three.
▶ 1:11:40But, I agree with you on the importance
▶ 1:11:43Well, well, hold on. I want to I want to follow up with my limited time. what more needs to be done to bolster BIS's enforcement efforts and its ability to conduct in-use monitoring in
▶ 1:11:58Yeah, let me just tell you that, you know, when I came into office, there was only one uh in China. Now, there are three. Um we believe, and I think agree with you, strongly that we should be increasing the number of export control uh worldwide. And we have a plan in this fiscal year to bring it up to 25. And in the president's budget, uh if if it's approved, we would be able to bring it up to 65. And that is getting closer to the level where I think we need to be.
▶ 1:12:26So, the budget request calls for on that on that note for a large increase in export control officers, how many additional will be focused specifically on China first?
▶ 1:12:38Well, we haven't um we haven't assigned each of the 65 to countries to specific countries. But, I can tell you
▶ 1:12:47main adversary
▶ 1:12:48Yeah, yeah, but what I what I can tell you is that, you know, it's important to have not just export control officers in the country, but also in countries where we're concerned about diversion.
▶ 1:12:57I get that. I only have 5 minutes. So in [clears throat] in China, how many do you how many will be focused on China?
▶ 1:13:05Well, you know, I I don't have I I don't have a number to give you right now. I haven't assigned the 65 to individual countries, but I can tell you that we're going to continue to focus on the risk of diversion to China and other country group D countries.
▶ 1:13:18Well, what what about Russia? How many do you think how many will be assigned to Russia? Have you thought about that? We typically focus the export control officers on countries where we're concerned about diversion, including to And so, you know, for example, I I believe that we have one in in Finland.
▶ 1:13:38I want to stay focused on the questions just again, just because I'm limited in So, you don't have a number yet as far as Russia either. Is that correct?
▶ 1:13:48I don't have a number, but I'd be happy to follow up with any other information that I can give you.
▶ 1:13:52Fair enough. Regarding Russia, it is known that Russia continues to rely on third part third country procurement networks to obtain controlled What additional authorities or international partners does BIS need to more effectively disrupt these networks?
▶ 1:14:09Well, I think it's about enforcement resources. It's about making sure that we can track multiple national security challenges at once. And that's the reason that we've been pursuing the uh enforcement surge this year, um and that we requested additional enforcement resources for this fiscal year and a massive uh increase for the next one. I think it's about making sure that BIS can become an enforcement powerhouse.
▶ 1:14:33Okay. Last year when the administration signed AI deals AI deals with the UAE and Saudi Arabia, it signed agreements with both of those governments to put security guardrails in place to protect US technology and prevent access to US Why are we placing Why were we placing those guardrails? Was it to prevent diversion to China?
▶ 1:15:01when we make deals with other countries to facilitate the export of advanced AI chips, we want to make sure that we're doing that in a way that's consistent with national security, right? We welcome other countries, including Gulf countries, investment in American technology. We welcome their decision to build their own tech infrastructure on the American AI stack. Um and we also are mindful of national security and want to make sure that we're clear about what our expectations are.
▶ 1:15:29And And last question. Now that we have lifted controls on
▶ 1:15:32has expired.
▶ 1:15:33Thank you. Thank you, Mr.
▶ 1:15:34Representative Kim.
▶ 1:15:36Thank you, Chairman. Uh Under Secretary Kessler, thank you for coming and uh testifying before us today. As you know, Chinese companies are not allowed to buy America's most advanced AI chips. So, what do they do? They go straight to the source and hire companies like TSMC to manufacture the chips for them. And they hide these activities by creating shell or front companies.
▶ 1:16:07In 2024, TSMC manufactured AI chip was discovered inside Huawei's hardware by research firm TechInsights. This was traced to a Huawei front company called SoftGo that received 3 million AI chips from TSMC.
▶ 1:16:26And following that revelation, BIS put in place the foundry due diligence rule to make sure chip makers like TSMC do not accidentally make more AI chips for But, there are now questions about whether overseas Chinese subsidiary companies in places like Malaysia and Singapore are exploiting a loophole.
▶ 1:16:52Under Secretary, pursuant to the foundry due diligence rule, are you currently enforcing a license requirement for a chip maker to be able to build AI chips for unapproved companies operating outside of arms embargoed countries? thank you for the question.
▶ 1:17:13What I can tell you is that if a if a foundry, like the one you mentioned, provides advanced AI chips to a front company for another company that's in country group D5, that would absolutely be a violation. That would be something that we could investigate and enforce against. And that's under the current rules. So, I don't think that this this is a loophole. I think it's quite clear.
▶ 1:17:42Okay. Um We We want to make sure that you are actually enforcing the current rules in place. And then, of course, you know, we don't want to make sure that we do not you know, allow China to be able to go behind our backs. And I need to make sure that BIS is enforcing it as strongly as possible.
▶ 1:18:06Of course, this is a major priority for
▶ 1:18:09Well, last June, you testified before the before our subcommittee on South and Central Asia that export control alignment with Japan and the Netherlands remains quote-unquote incomplete. But, that's been 1 year since you said that.
▶ 1:18:26So, Dutch and Japanese companies continue to sell chip-making tools or provide service and repair services to more advanced chip factories in China that US companies are prohibited from selling to or working with. So, can you provide any updates on BIS's progress on aligning our export controls on chip-making equipment? And have you set any specific deadlines?
▶ 1:18:53Well, thank you for the question again. You know, I I what I can tell you um and I I need to respect the confidentiality of diplomatic discussions that I have. I can tell you that there is cooperation um with foreign governments on on uh export controls. Um but I I unfortunately I I have to report that the cooperation remains incomplete. There's still more work to Um and that's a conversation that I have constantly um particularly with allies.
▶ 1:19:24Um and uh so there's more work to do. You know, BIS has historically worked with the private sector through technical advisory committees as well as internal compliance uh departments. So, Under Secretary, you have previously discussed the importance of a dialogue with industry given the speed and the scale of the technologies that is under your jurisdiction.
▶ 1:19:52So, can you talk about the collaboration between BIS and the private sector and how the industry assists BIS on issues of compliance or
▶ 1:20:04Absolutely. Well, we work very closely with industry on a day-to-day basis at all levels in BIS, um whether that's answering their questions, helping them understand the rules, or getting input on the rules that we should have and fixes to the rules that we should make. Um so, you know, both in in formal channels and informal channels, we're constantly consulting with with
▶ 1:20:27Okay. Thank you. My time's up.
▶ 1:20:29Representative Costa.
▶ 1:20:31Thank you very much, Mr. Chairman. Thank you, Mr. Secretary, for appearing before the committee today. Um I want to ask you a kind of a threshold question that will be the basis of my other questions, but I know the focus has been on China this morning, but I also believe that both China and Russia oppose a adversarial threat to our country and to our allies. Would you agree?
▶ 1:20:56Well, we we have Russia opposes national security risks. That is true.
▶ 1:21:01Okay. Um and just for your you may know this, but I I'm one of those members that really disagreed with the president on the handling of the the issue of Navida and the selling of its powerful H200 chips to China. I think that that is in an area where we we a direction we don't want to go.
▶ 1:21:25But let me focus on with regards to BIS's budget the efforts with Russia. You know, since they launched their illegal invasion in Ukraine in 2022, the United States and G7 countries began using various tools of statecraft to restrict Russia's finance and military capacity with various degrees of success, one would argue. A key one I think being export controls have been very difficult.
▶ 1:21:54As you know, these tools are central to exerting maximum pressure on Putin in order to bring an end to this war as we all want to see happen and certainly the president has tried. Um but at the negotiating table, it seems that in the first 3 years following Russia's invasion, US has imposed a range of new sanctions, export controls over Russia with the Biden administration over 700 Russian entities to the entity list.
▶ 1:22:20But under the Trump administration, the US export controls on Russia seem to have fallen off of In 2025, it the US did not add any Russian entities to the entity list, but it even more importantly, I think, comes in enforcement, obviously, both with us and with the G7 countries.
▶ 1:22:39In uh Senator Graham's memory, um in reference to the sanction bill that he was this the his bill and the proponent, how do you explain this drop-off in the US export controls on Russia? And why why does it seem in my view that we've taken the foot the administration's taken the foot off the gas when it comes to exerting pressure? The president likes to leverage and takes great pride in that. We've got great leverage opportunities here. Why?
▶ 1:23:08Well, I don't see the same drop-off that that you do, sir. You know, we continue to enforce. We continue to maintain um the export controls uh that apply to Russia, and we continue to enforce them. Um and I think the most important step that we can take is to strengthen enforcement across the board.
▶ 1:23:26Well, I agree, and you answered, I guess, while I was out uh in another hearing uh my colleague's question about adding more uh experts within BIS in the area of enforcement and as it relates to Russia. Did I hear that correctly? Is that intention to do so?
▶ 1:23:44Well, we would we want to add experts within BIS across the board.
▶ 1:23:48Well, we need to. I think we need to strengthen our export controls. And And how you're going to use this proposed additional funding, I think many of us are concerned with, not only on Russia, but China as well. They pose a threat. I mean, uh both uh President Zelenskyy indicated here within the last month they are in retrieving um missile um that had been uh sent to to Ukraine and and crashed that uh those uh components within those Russian missiles had parts uh chips
▶ 1:24:19and circuit boards that were manufactured either than the US or in Europe. I mean, that means they're getting around the enforcement, right?
▶ 1:24:29Anytime we hear reports like that, we look into them and that obviously raises a question about about enforcement and adherence to our rules.
▶ 1:24:37Well, enforcement, effective enforcement is what we want.
▶ 1:24:41And and it seems to that the the Russians are very cagey and capable, we I think from hard experience in the last several years, uh in circumventing uh these uh these sanctions.
▶ 1:24:55Well, we're fully committed to cracking down on all enforcement all all all circumvention, all diversion that we know of.
▶ 1:25:02Well, it seems to me that it's important that you report to the committee uh to the degree of additional funds and I am one of those who thinks it ought to be you ought to have more resources, frankly, uh in terms of our efforts to enforce effectively the sanctions both posed toward Russia and China. Do you agree?
▶ 1:25:23I appreciate that. Yes, and uh you know,
▶ 1:25:25will you then report back to this committee I with the jurisdiction on what progress we can mark here uh before the end of the year?
▶ 1:25:34I'm happy to work with that I'm happy to work with you on that, absolutely.
▶ 1:25:37All right, uh the balance of my time is expired uh more to be continued. Thank
▶ 1:25:43And uh best wishes Congressman Costa. I don't want to ruin your reputation, but I agreed with everything you said. I know um I recognize myself and indeed Under Secretary Kesseler, I'm [clears throat] grateful for your service, but I'm also extraordinary uh appreciative of your South Carolina family heritage and you're you're always welcome back to visit with the family.
▶ 1:26:03Thank you. I appreciate that.
▶ 1:26:04Please come back. With the visionary leadership of President Donald Trump and Ambassador Tom Barrack, Syria is emerging as a partner with the United States after 54 years of Ba'athist socialist dictatorship, 68 years of alliance with the Soviet Union. Last Wednesday, Senator Lindsey Graham met with Syrian President al-Assad in Ankara as both attended the NATO summit.
▶ 1:26:28It is so meaningful that Senator Graham changed his position of concern about Syria to support Syria in line with President Donald Trump give Syria a chance. I am grateful for the issuance of the export license of Nokia for the Syrian Parliament. This ensures America as a partner by choice, not adversaries.
▶ 1:26:48With the upcoming lifting of the state sponsor of terrorism designation, which I hope you expedite, how do you plan to further ease export controls such as possible for US companies to invest and export to Syria to keep Syria thriving and support the sovereignty of Syria for the benefit of all of the Middle East?
▶ 1:27:10This the possibility of stability, peace, and prosperity that President Trump I think is correct in identifying for the first time in 3,000 years. And with that in mind, what what can we do?
▶ 1:27:23Well, thank you. Thank you, sir, for the question. You know, I've been proud to the fresh start that the Syrian people are making and to facilitate increased trade and investment with Syria through the export controls.
▶ 1:27:38As I know you know, we we issued a regulation last year which eased export controls on Syria, and that's made a big difference including in the case that you you know, right now there as you mentioned there was a notification to Congress about the SST designation of Syria and you know, we are going to talk to make sure that we keep the export controls
▶ 1:28:09in tune with other changes that are happening to the law Um, so that we can continue to encourage trade and investment.
▶ 1:28:15And and again, what an extraordinary opportunity we have after uh, decades of uh, of socialist rule to have a potential for a free and dynamic and stable and peaceful and prosperous uh, Syria. So, I wish you well on that. And I want to join with Secretary on constant constant. There's evidence a disturbing evidence that American components used in Russian weapons of mass destruction.
▶ 1:28:40As it I have sent several letters to the the affected secretaries urging additional measures to be deployed to prevent sensitive technologies from reaching enemies of freedom to kill Ukrainian families. Adversaries should never benefit from American ingenuity. So, grateful uh, as we're pending right now uh, for the Russian sanctions bill to be addressed as a Lindsey Graham sanctions bill as he was a champion for Ukrainian victory.
▶ 1:29:10What is being done to close loopholes and prevent American companies from exporting radar radar components and other sensitive technologies to war criminal Putin?
▶ 1:29:20Look, I think I think in my mind this is about strong enforcement, right? We need to make sure that whenever there's a violation happening, whenever we detect possible violations, whether it's through evidence from the battlefield or evidence from our companies, that we act swiftly to address it. And that's why we've requested the additional resources that we have in the budget uh, to continue to to surge enforcement.
▶ 1:29:47And and again, thank you very much for your service. And again, I'm I'm so thrilled to find out find out uh, your South Carolina heritage. It's certainly meaningful to me and uh, my constituents. Uh, with that in mind, we now to go to my friend from California, Congresswoman Jayapal.
▶ 1:30:04Thank you, Mr. Chairman, from Washington, but
▶ 1:30:08Uh Mr. Under Secretary, it's good to have you here today. Thank you. Your agency plays an important role in American AI policy. Both foreign and domestic AI companies are actually built on a mass surveillance regime that prioritizes winning the so-called arms race by putting private Americans' information at risk. Through export controls and other mechanisms, your agency is in a unique position, I think, to ensure that AI systems are safe, effective, and equitable.
▶ 1:30:37Last month, shortly after Anthropic released its new Fable 5 and Mythos 5 models, your agency sent the company a cursory letter that a license would be required for any foreign person to access their models. In response, the company shut down access to these models for all users. After 2 and 1/2 weeks of negotiations between the Trump administration and the company, your agency partially reversed the restriction. Did you participate in any of those discussions with Anthropic?
▶ 1:31:09Well, this was uh an action that was taken under the export control authority. So, yes, I was involved in the actions that we took.
▶ 1:31:17And is it true that the reason your agency issued the letter was because Amazon CEO Andy Jassy raised concerns to White House officials about the ability to bypass the AI's AI models' guardrails?
▶ 1:31:32Whenever we see a risk national security, whether it's from a frontier model or something else, we want to act swiftly to address it. And that's what we did in this case.
▶ 1:31:41But did you Were you responding to concerns that Amazon CEO raised to you? Is that where the concern came from?
▶ 1:31:48The concern like we we have a apparatus that evaluates frontier It wasn't just, you know, it wasn't like based on [snorts] a phone call. It was based on our evaluation of the risks of the dissemination of the model and our our concerns about what we what we didn't know. Um and that's why, you know, that's why we issued the controls. We worked with the company.
▶ 1:32:16They cooperated over the course of of a few weeks um admirably with the administration. Um and when we were able to resolve our concerns and uh you know, ensure that they would continue to work with us and continue to help us um understand the vulnerabilities in the models, then we lifted the controls.
▶ 1:32:36Thank you. Um I ask because there's a political article that suggests differently. It says that Amazon, quote, raised concerns to the White House and, quote, was responding to an administration request for feedback. And so, I guess what I want to know is did you Did your bureau make an independent analysis of the security risks? You can just say yes or no.
▶ 1:33:00you know, the um the assessment of the risks is not um housed in BIS in the first instance, I would say. Um you know, I mentioned Casey before when we were talking about uh this
▶ 1:33:15I guess I'm just asking you what independent analysis you made separate from a phone call from the CEO of a major company that was concerned about Um did I'm wondering if you actually went through an analysis of your own and whether the other three agencies with jurisdiction on export controls, that's State, Defense, and Energy, did they sign off on the restrictions?
▶ 1:33:36The US government makes its own independent assessments of the risks of frontier models, absolutely.
▶ 1:33:44So, you did your own independent analysis to come up
▶ 1:33:47does, yes.
▶ 1:33:49And And And the other three agencies with jurisdiction on export controls, they all signed off on the restrictions?
▶ 1:33:56Well, when we when we issue is informed letters, we don't um necessarily go through the same kind of interagency process that we would do when we have a Um but uh I think it's important to note that the government is conducting its own independent assessment of frontier
▶ 1:34:12Well, that is very important because I do think that at the end of the day these issues are too complex and important to be decided on political favoritism or the advice of a big tech CEO, even though he's my constituent. Amazon is located right in my district. I want to make sure that we have vigorous export controls and a well-established interagency process.
▶ 1:34:33And so in the future, can you commit to issuing rules in the Federal Register with clear guidelines that would apply to all AI companies and models rather than issuing letters to companies on an ad hoc basis.
▶ 1:34:48Look, I think it depends on the circumstances, but the executive order that the president issued on AI in June uh is a step towards establishing an
▶ 1:34:58this. I mean, the restrictions that you put in place were just for this one company. Are you going to establish clear rules and guidelines, publish them in the register, so everyone understands what they are, so that there's not a perception that you're favoriting you're giving favoritism to one company over
▶ 1:35:15I expect that the government uh will develop uh more rules on the release of frontier AI Um yeah, so I I I think that that that's going to happen.
▶ 1:35:26So that's what you're saying you're going to do in the future.
▶ 1:35:28We now recognize the member from New Jersey, Mr. Kean.
▶ 1:35:31Uh thank you, Mr. Chairman. And thank you, Under Secretary Casserly, for being here Uh America isn't in an AI arms race with As we compete for the latest memory computing chips, and language learning models, America needs to fund and to to robust export controls that place America at the front of the AI arms Under Secretary Kessler, whistleblowers have long been a cornerstone of America's intelligence
▶ 1:36:02gathering operations. However, the Bureau of Industry and Security BIS does not currently have a whistleblower reward Do you agree that a whistleblower program would strengthen intelligent gathering and enforcement efforts at
▶ 1:36:18I think that that that sounds like a constructive idea. I can tell you that whistleblowers right now play an important role in our enforcement efforts. We have cases that we generate based on credible leads from So yeah, I think that that facilitating more of that type of activity and disclosure to Commerce is constructive.
▶ 1:36:39The Stop Stealing Our Chips Act, which I co-led with Representative Johnson of Texas, creates a whistleblower incentive program at the BIS. Recently, this bill recently passed House Foreign Affairs Committee with overwhelming bipartisan support and passed out of the Senate with unanimous consent. I look forward to seeing this bill considered on the House floor in the very near future.
▶ 1:37:02I also appreciate your leadership in strengthening America's pharmaceutical supply chain and advancing domestic manufacturing. My district is home to numerous rare disease drug developers who are typically small biotechs with only a few FDA approved products. Their patients are often children who have few to no treatment options.
▶ 1:37:25So I was encouraged that the administration's section 232 pharmaceutical tariff proclamation, the president recognized that the supply chain of rare disease would receive a 0% tariff rate. Could you provide an update on when the Department of Commerce expects to publish the Federal Register notice clarifying the the implementation of the Section 3D 0% tariff treatment for pharmaceutical products.
▶ 1:37:58I expect that in the next, I would say, month or two, um certainly before uh before September.
▶ 1:38:05Thank you. And and will you commit to working with me and the Congress to ensure that the implementation of the pharmaceutical tariffs reflect the unique consideration of rare disease supply chains order protect rare disease patients from unintended consequences?
▶ 1:38:20Of course, I'd be happy to work with you on that, work with other members of Congress on that.
▶ 1:38:23Thank you. Um and then and the third question is the BIS's export control enforcement work is critical to winning the AI arms race with China. I'm glad to see this reflected in your robust funding request for the fiscal year 2027. Can you discuss how BIS would leverage the increased funding requested to prevent the diversion of AI chips from their intended destination?
▶ 1:38:49Well, absolutely. I mean, I think it's more of what we're doing. We already devote considerable resources as a proportion of our of our budget, we devote considerable resources to smuggling schemes involving AI chips, diversion schemes. And that's what led, for example, to the case that involves Supermicro, which I I mentioned in my opening statement. Um I think we just need more of it. We know that there's more happening.
▶ 1:39:13Um we have active cases, uh but we're concerned that there are cases that we either haven't detected or that we just don't have the resources to chase down. So, I again, I think it's I think it's just about increasing the uh resources dedicated to enforcement and encouraging the enforcement unit of BIS to do more of what they're doing.
▶ 1:39:34Thank you. I yield back.
▶ 1:39:36Now recognize the gentleman from Rhode Island, Mr. Amo.
▶ 1:39:40Thank you. Thank you for being here, Mr. Kessler. As you know, your job is to help American businesses take their world-class products to international markets while protecting our most vital trade secrets. But, under your leadership at Commerce, the Bureau of Industry and Security has become less effective and less efficient. You stopped providing the rules of the road for companies operating in China or Russia.
▶ 1:40:06You haven't added a single bad actor to the list of prohibited entities companies can't sell to since October. But, all the world's bad actors didn't just disappear last October. The problems are still there, and frankly, you're just ignoring them. Not only are you making Americans less safe by letting the bad guys run rampant through the world's markets, you're actually making it harder for Americans to do business.
▶ 1:40:32Delays at BIS have doubled the average processing time for export licensing, causing American businesses to lose contracts and undermining our leadership in technology worldwide. Right now, BIS has limited engagement with American businesses as they struggle to comply with our increasingly complex export In the past, the BIS provided real support to American businesses, including training seminars and advisory opinions. Businesses knew they could count on BIS.
▶ 1:41:02Empowering bad actors while undercutting US companies is the exact opposite of your job. But, frankly, that's what you're doing. So, Mr. Kessler, do you want businesses to comply with our export controls?
▶ 1:41:17Well, sir, uh I disagree with much of what's in your
▶ 1:41:20But, yes or no?
▶ 1:41:21And I want to I want to clarify a couple of things.
▶ 1:41:25One is uh I think you said that the processing time has doubled.
▶ 1:41:29That's incorrect. The processing time uh the average processing time for licenses was 62 days in 2025 uh versus 60 days in 2024. It's approximately the same. Um as far as the entity list goes, what I think is important is enforcing the list. We have a robust list. Uh but it's important to enforce it. And
▶ 1:41:51you don't you don't believe that anybody No, excuse me, Mr. Kessler. So you don't believe there have been grounds to add anyone since October.
▶ 1:41:58We have added 140 entities to the entity list. And we will continue to add entities to the entity list when we as an administration think that it's appropriate to do so. But I think it's important to enforce the list. Under the Biden administration, thousands of licenses thousands of licenses were granted to entities on the entity list. There was rubber stamping happening for exports to entity listed companies.
▶ 1:42:22And do you think that you Mr. Kessler Mr. Kessler But but let's go back to my original question. I I I wanted you to to to have some time, but my question here is do you want businesses to comply with our export controls?
▶ 1:42:35Then why aren't you helping them when they're begging for assistance? BIS traditionally hosted an annual update conference each March, but that was canceled. And the last conference was in 2025. So why haven't you hosted the annual conference?
▶ 1:42:51We keep track of the number of times that we assist companies that approach us for assistance. In 2025
▶ 1:42:58I'm asking Mr. Kessler, excuse me. Mr. Kessler, I'm I'm speaking. So and I asked you a question. Why haven't you hosted the annual
▶ 1:43:07What I'm trying to explain is that we help companies routinely on a daily basis many times a day such that in 2025 we did it 35,000 times. And that was more than the prior years, an increase over the prior year. We will continue to host an update conference.
▶ 1:43:22Okay, so do you So that So that's answering my question. So you plan to ho- host a conference this year.
▶ 1:43:28Uh likely this year.
▶ 1:43:29Good. Okay, because the challenge here is when you reduce BIS's ability to work with American businesses, that's dangerous. It reduces compliance with our export controls, increases the chances that our sensitive technology ends up in adversary's hands. There are consequences. So, just flippantly saying we do it in a lot of ways, but we're going to cut off in an essential way is not satisfactory to me. You know, this is why I introduced the Strengthening Export Controls Compliance Act to require BIS to re-engage with industry.
▶ 1:43:58The bill passed this committee earlier this year with overwhelming bipartisan support. So, my colleagues share my sentiments. This bill improves compliance with our export controls, strengthens national security, allows BIS to focus on its enforcement resource its enforcement resources on bad actors rather than honest mistakes. So, that's a win-win. So, here's here's the top line.
▶ 1:44:19I'm hoping that you make the changes needed to restart engagement, to do it with the thoroughness that's required to increase compliance and to protect national security. The stakes are high. And so, it isn't just, you know, an informal process. Use the tools that you have at your hand to do something that's important to the safety and security of this nation. With that, I yield back. Representative Barr.
▶ 1:44:45Thank you, Mr. Chairman. Under Secretary Caster, thank you for your testimony here today. In response to um that last round of questioning, you're being accused of running a less efficient export control system. What what is a more efficient export control More entities being added to the list, but constant licensing?
▶ 1:45:08a thoughtful process of adding entities the proper issuance of licenses without automatic issuance of licenses. What is the more efficient system?
▶ 1:45:19Well, I I think the latter. I do, too. And I appreciate the administration and your focus on enforcement. Because if you really want to get tough on adversaries and make sure we don't have the technology transfer that we're concerned about, the enforcement piece is really the difference that this administration is making from the prior administration. So, for years we've we've seen only 11 export control officers stationed worldwide.
▶ 1:45:48Uh and these are the officials whose job it is to make sure that the products that we sell worldwide actually go to where they're supposed to go and don't go to where they're not supposed to go. We had only one single officer in Southeast Asia, a hotbed of smuggling. Uh but now, um as you testified earlier, the BIS is in the middle of a hiring surge of new export control officers. So, elaborate on BIS's plan for deploying these new export control officers. Where will they be stationed?
▶ 1:46:20one of my colleagues was concerned that there were not enough in China. Tell us a little bit about your plans um with respect to to hiring more uh export control officers.
▶ 1:46:31Sure. So, under the current budget, uh we expect to have 25 um placed by the end of the fiscal year. And right now we have three in China. We're going to have multiple We We already have some in Southeast Asia. We're We're going to increase that in Southeast Asia. We expect to increase it in the Middle East. Um we're increasing it or increasing our presence in Central Asia. Um we want to have a presence uh across the world uh anywhere that we have significant American technology flowing.
▶ 1:46:59Well, this criticism from the other side of the aisle seems pretty misplaced when you're when you're adding enforcement, not reducing enforcement, and you're focusing on the areas where we we see most of the problem. I think the criticism needs to be directed uh to the to the past, not to the present. Um let's talk about AI chip smuggling. Um Under Secretary, we've banned advanced AI chip sales for China, but Beijing is desperately working to smuggle these products anyway through illegal networks.
▶ 1:47:29Epoch AI estimates that between 290,000 and 1.6 million H100 equivalent chips were smuggled into China through the end of 2025. That could represent about a third of China's total total AI chips. How does BIS's new enforcement posture and enforcement surge of enforcement take into account the scale and seriousness of this issue?
▶ 1:47:53Well, again, we have surged our enforcement efforts. That's why there was an 18-fold increase in penalties imposed from 2024 to 2025. And it's already showing results. You know, there was a Financial Times article recently that said that the price, you know, there there there is a black market for chips in China, and because of BIS's enforcement activities, the price of smuggled chips have doubled. And that's an indication that our enforcement activity is working to address the concerns that you're
▶ 1:48:22As you and I have discussed, legislation I've been working on for years, the new screening for outbound investment was made a part of the NDAA. It is now The Coins Act, as it's called. That law rooted in a recommendation from the US-China Economic Security Review Commission for many, many years. So, we now have this new interagency tool to screen outbound investment.
▶ 1:48:51And one of the requirements that it imposes on Commerce is as well as Treasury and the Department of War is an alignment of these lists. So, you manage the entity list. There's the 1260H list at the Pentagon. There's the CMIC list at Treasury.
▶ 1:49:07And the idea is that we shouldn't allow US investment into a foreign entity that helps facilitate the development of technology when BIS is restrict is using export controls to to restrict the transfer of that technology.
▶ 1:49:27Have you begun with the Pentagon, with Treasury to start to align the the entity list with some of these other lists so that um the export control system that we have works in tandem with restrictions on outbound investment.
▶ 1:49:45These are discussions that that we have all the time with the other agencies about the different lists. So yes, discussions are going on.
▶ 1:49:51Well, just as a friendly reminder, Commerce under this new law is required now to work with Treasury especially in making sure that there's coherence in our outbound investment screening and our export control regime so that we are working in coordination with one another and I and I urge you and and and the other relevant agencies to to collaborate and inform Congress according to the new law.
▶ 1:50:18Finally, on onshoring manufacturing, we appreciate your work Under Secretary in advancing the President's America First Trade Policy to protect American businesses from Chinese trade actions and to support onshore manufacturing. I've heard from a number of companies that are looking to move their manufacturing facilities from out from outside of the United States into Kentucky in direct response to the President's agenda. As part of your role at BIS, you oversee Section 232 investigations.
▶ 1:50:47How is your department helping these companies their attempts to move to America these these supply chains?
▶ 1:50:55Well, it varies from program to program, but Section 232 is all about strengthening these critical industries, these critical supply chains. Um there are different tools that we have available to us for different Um but you know, for example, in in the pharmaceutical sector, um we have a program to incentivize companies that make new investments in US pharmaceutical manufacturing and an onshoring their manufacturing capabilities.
▶ 1:51:20So, it varies from sector to sector, but you know, I can tell you that if there's any any companies that you or the members know of that would like assistance in onshoring, we're there to help.
▶ 1:51:30talked about wood products and the dumping problem there, but thank you for your service. I appreciate your answers and I'll yield back.
▶ 1:51:36Representative Castro.
▶ 1:51:39Under Secretary
▶ 1:51:40Secretary I want to start with something that I hope that we can agree on. The most capable AI models being trained they require large concentrations of advanced computing chips. Is that something that you agree with?
▶ 1:51:55And would you agree that the Chinese military and entities affiliated with the Chinese military should not have access to these chips to these chips to train their own AI models?
▶ 1:52:06I think it's important for American technology to be used for American companies in training our models. Right, and not Chinese models and companies that are affiliated with their own military. Right, they should be strengthening America. Sure. Well, so I guess my question is on June 8th the US Department of Defense listed Alibaba, a Chinese company, as having ties with the People's Liberation In May it was reported that the Commerce Department authorized 10 Chinese companies including Alibaba to purchase
▶ 1:52:36Nvidia's H200, a highly capable AI chip as you know. And my question is has the Department of Commerce authorized any transactions with Alibaba since the Trump administration took office?
▶ 1:52:49All the information about H200s is before the committee. It's confidential. I'm not I can't discuss it here, but the committee has information about the licenses that we've received.
▶ 1:52:59I know I understand that in this forum that you can't comment on specific but would you agree that as a major Chinese company developing advanced AI models while being affiliated with the Chinese military that American companies should not sell any advanced chips to And if any licenses were granted, will you revisit those decisions?
▶ 1:53:20Well, what I think is that it's important that the approach that we've taken is to limit the quantity of chips to any particular company H200s. First of all, you know, I think it's important to recognize that we're talking about a chip that is several generations behind the leading edge. A chip that American companies aren't buying right now. And that we have an elaborate set of national security requirements that have to be fulfilled in order for us to consider the license on a case-by-case basis rather than under a presumption of denial.
▶ 1:53:47We issued this regulation in January which sets out all those conditions. And so, I I believe that the requirements that any company has to meet to get a license including all the requirements in the January in the January regulation including the quantity requirements, those are robust. And those should give us comfort about any exports of these chips.
▶ 1:54:10Now, I also want to make clear that there have been minimal exports of any H200s to China so far. And
▶ 1:54:20Well, I and I guess No, and I appreciate the answer. And I'm trying to fully understand kind of the contours of your decision-making because you made the comment that certain chips are older generation chips than others. So, So, I guess are you willing to sell older generation chips to a company affiliated with the Chinese military as long as it's not the latest technology or kind of what what's the contours of that decision-making? Without getting into a specific license or company. There are different degrees of sensitivity, right?
▶ 1:54:50Um and that's how our export control regime is set up. There are levels, there are for older technology, for technology that is kind of irrelevant now. Um, but
▶ 1:55:02but just just to nail down just an answer to the question, uh is the Trump administration willing to sell um some of these advanced chips to companies affiliated with the Chinese military if the conditions are right? we screen the parties carefully that um are the subject of license applications that we receive. So, for example, if a company is on the entity list, we're not going to approve a license for a chips to that company.
▶ 1:55:31So, we would we would apply a very careful analysis to any license that we get before
▶ 1:55:36No, thank you for I have one more
▶ 1:55:37rejected We have rejected licenses.
▶ 1:55:39I appreciate it. Now, I have one more subject that I got to get to in my question. Um Yeah, Under Secretary Kessler, transnational criminal organizations continue to fuel instability across Latin America and the Caribbean, as you know, and one of the principal drivers of their power is their access to firearms, of which the vast majority are trafficked from the United States. Uh I'm glad that the State Department has acknowledged this issue and is using foreign assistance to help countries track where these firearms are coming from.
▶ 1:56:05Uh do you agree that the that these cartels, which the administration has designated as foreign terrorist organizations, should not get any weapons from the United States?
▶ 1:56:15So, absolutely, we should be restricting the access of cartels to weapons.
▶ 1:56:20Well, then I guess that's why I'm confused because in September 2025, you rescinded the April 30th, 2024 BIS regulations that added safeguards for the export of firearms and stopped notifying the Congress about exports of these weapons.
▶ 1:56:39Uh and the Trump administration State Department uh if the Trump administration State Department and Secretary Rubio are trying to help Mexico and countries like Haiti track and stop these firearms from getting into the hands of designated foreign terrorist organizations, uh then why did you as the head of BIS make it easier for these cartels to get weapons by removing the safeguards instituted at BIS.
▶ 1:57:02That regulation went far beyond what you're describing. That regulation established a presumption of denial for 36 high-risk countries. Uh it was uh extremely burdensome. It cut off unnecessarily cut off American firearms exporters from, you know, I believe hundreds of millions dollars a year uh in business
▶ 1:57:22Well, this is the this is our principal way. I know I'm only allowed
▶ 1:57:24has expired.
▶ 1:57:25Yeah. I'll get back with you on it. Thank you.
▶ 1:57:27Representative Self is recognized.
▶ 1:57:30Uh thank you, Mr. Chairman. Uh Mr. Under Secretary, we uh I've been looking at your your presentation here and your there's a lot of positions here. I want to I want to ask you a question. I want to look at should we be looking at inputs or outputs? A lot of the committees that I'm on, we look at inputs.
▶ 1:57:57What are we going to What are we going to do to add to the department? What are we going to do to uh encourage growth? But I want to look at outputs here we were told, not by you, probably a year ago, I don't remember the man's uh that China could not smuggle enough AI chips to overtake the US. It was almost a flat statement. And I'm not sure they have to because my question to you is should we be looking at policy or enforcement?
▶ 1:58:25Because your presentation is enforcement heavy. Let's just be honest.
▶ 1:58:32It is enforcement heavy. Uh I I could go through your charts, but I won't. But the information that we were we were were given that there are no new export controls on equipment. Uh the license to buy H200, but not Black Wells, is is there. There are no entity list additions for almost a year now. Uh there are no new location uh controls put in place.
▶ 1:58:59So, my question is, are we Do we really need to look at Or do we need to look at the policies that we have in place? And I understand you may you you have a dearth of of employees, but if you'll just take the overall view there of why should we not be looking at some of these policies that seem to be lacking as opposed to only looking at enforcement inputs. I want to talk about outputs.
▶ 1:59:27Well, I agree with you that outputs are important and outcomes are important. And we should be focusing on the outcome of enforcement and how much how much are we enforcing? And as I mentioned, we increased enforcement 18-fold uh from 2024 to 2025, and I think that's significant. Under the prior administration, unfortunately, there was significant under enforcement and under deterrence of violations of of the laws.
▶ 1:59:55Now, we should look at policy, too, and Congress should look at policy, too. We should look at that together and find areas where we think the policies need to be changed. Um but I don't think that more regulation equates to more national security. Uh and so, you know, what I see as the the highest priority for BIS and the biggest hole to fill is in enforcement. BIS ought to be an enforcement powerhouse.
▶ 2:00:18We ought to be, for example, having licensing processes that are rigorous, that appropriately handle applications that involve items of national security concern.
▶ 2:00:29But let's not rubber stamp it.
▶ 2:00:30Let's look at some policy that you might take a look at. The AI action plan. So, I think you've got the the requirement for the policy, the negotiated policies in place, they just haven't been enacted. So, I I go back to my point. So, I'll I'll leave you with this.
▶ 2:00:48Mhm. What three metrics, if we do this investment, and I think you use the term I've forgotten the exact term, but generational investment or something like that. What are the three metrics that a year from now Congress could say you either met the metrics or you
▶ 2:01:08I think that penalty amounts is the single most important metric, right? I I see a huge
▶ 2:01:13Penalty amounts? Dollar amounts?
▶ 2:01:15Penalty amounts, because we know that there's and I'll tell you why, because we know that there are significant violations out there that are happening. We know that we've made a lot of progress from 2024 to 2025, and we're seeing so far in 2026 continued progress and increasing the penalty amounts. We want to know is BIS catching the bad guys? Is are are the violations getting stopped, and are we effectively deterring so the wrongdoing that that we know is happening?
▶ 2:01:41So, you're not particularly fussed about the AI action plan not getting implemented. of course we want to implement the AI action plan. There's several parts to the to the action plan. You know, part of it is export promotion, part of it is you know, semiconductor manufacturing equipment controls, which we're enforcing strongly. So, absolutely, we want to implement that plan.
▶ 2:02:08I I think I'm going to submit the three metrics question to you in writing and and just ask you to take a look at that. What do we look at in a year from now for outputs of this investment should we make it? Mr. Chairman, I yield back.
▶ 2:02:23Representative Stanton is recognized.
▶ 2:02:25Thank you very much, Mr. Chairman, and thank you, Under Secretary Kessler, for being here today for this important hearing. It is very concerning that since you took over the Bureau of Information Security BIS in March of last year, BIS has published the fewest rules of any year in more than two The administration has also not added any new entity to the government's blacklist since October, the longest period of inaction since 2008.
▶ 2:02:51And export license applications have piled up for so long that American companies have lost business waiting for approvals. As rules stall, licenses pile up and the foreign companies that could pose national security risks duck Commerce blacklist, sensitive technology has more room to flow to China and other And in the absence of action from BIS, Congress has stepped in advancing bills aimed at tightening US AI chip export controls and closing perceived One of those bills
▶ 2:03:21is the MATCH Act. MATCH Act would impose extensive new controls on US semiconductor tools and compel allies to do the same by controlling their tools extraterritorially or by restricting the sale of US components to their to their I'm concerned that if passed, the MATCH Act will have severe consequences for allied equipment supplier Excuse me.
▶ 2:03:43Will have severe consequences for allied equipment suppliers, chip manufacturers like TSMC and in Arizona and Intel also in Arizona rely on. Under Secretary Kessler, from your perspective, is the MATCH Act the right approach as written? Do you agree that the MATCH Act would hurt our domestic semiconductor ecosystem?
▶ 2:04:03Well, there you know, there's a policy motivation for the MATCH Act which I appreciate, which is that we need greater alignment between uh the US export control system and foreign export control systems because we don't want foreign countries to Um you know, the administration is going to First of all, we're we're willing to work with Congress on any legislation in this area. Um and again, I appreciate the motivation behind it.
▶ 2:04:33We want to make sure that any legislation that's passed uh gives the administration new tools and doesn't constrain its authority.
▶ 2:04:40Thank you. Uh, your perspective is very helpful as this legislation advances in the House and Senate. The introduction of the Match Act highlighted the importance of achieving export control alignment with our allies. However, reporting indicates that your office has significantly curtailed staff level engagement with our foreign government counterparts. This is in addition to pulling back from participating in traditional export control dialogues like the Wassenaar Arrangement allies.
▶ 2:05:06This is a confounding decision given the importance of achieving export control alignment to stay ahead of China in the AI race. Mr. Under Secretary, do you agree that export controls are generally the most most effective when they are implemented multilaterally and in close coordination with our allies and partners?
▶ 2:05:25I do agree that it's important to coordinate export controls with allies and partners. I I also believe, you know, I believe that we need to be protective of taxpayer resources. And, uh, not every single, uh, convening of export officials in foreign capitals is meaningful. And so we we keep a close eye on the travel that our employees
▶ 2:05:52It's been well over a year since Section 232 semiconductor tariff investigations was initiated. Can you give us a status update and can you commit to a rough time frame for when industry and Congress should expect a determination?
▶ 2:06:04I'm sorry.
▶ 2:06:05For which investigation?
▶ 2:06:06The Section 232 semiconductor tariff
▶ 2:06:11The investigation's complete. Um, the president issued a proclamation. Um, and it described, uh, several phases. So, um, that's that's already
▶ 2:06:22Thank you very much. Uh, I yield back.
▶ 2:06:26Representative Fine is recognized.
▶ 2:06:28Thank you, Mr. Chairman, and thank you, Under Secretary Kessler, for being here today and answering all of our questions. Um I've got a few cuz I think really what you're doing is incredibly important. So, under President Trump, he's placed BIS as the cornerstone of his AI action plan and America first trade policy. One of the key components of these policies is ensuring that US exports American AI to our allies and partners to prevent their dependence on our strategic rivals technology. Now, I'm particularly concerned about the exposures of our allies to a malign AI full stack.
▶ 2:06:58We don't want foreign AI to become the standard. We'd like our AI stack at all parts of the value chain to become the standard. It's the different It's like It's VHS versus Betamax, except one of them is American and one of them is not. And so, that's why I have filed a bill in HR 6996, the Full AI Stack Export Promotions Act, which was marked up and passed in this committee.
▶ 2:07:23Unfortunately, ongoing delays in license approvals and confusion over the future of the AI Diffusion Rule have caused uncertainty and hampered exports to allies and partners. Can you comment on BIS's role in facilitating the expert the export of US AI to our allies? I agree with you that it's important to encourage our allies to build and invest in the American tech stack. Uh it's essential.
▶ 2:07:50Um and that's part of the thinking behind the action that we took recently with the UAE, behind the Middle East deals that we've been doing. Um you know, we want to encourage these companies to build on the American tech stack, to invest also in the United States and our tech ecosystem. Um so, the the the the administration and I personally agree with that 100%. you know, your your your question referenced some confusion, um but I don't think there has been confusion about the rules. I think the rules have been clear.
▶ 2:08:21Um you know, uh so, uh and and I I I don't think either that there have been uh you you you mentioned licensing. And the timelines for licensing for routine licenses have been quite fast. They've been some you know they've been pretty much the same since 2024. Um but we do apply a high level of scrutiny to those licenses that involve sensitive technologies.
▶ 2:08:44Okay. So what you've mentioned at a high level but what specific actions are you taking to speed up the licensing process and can you give some clarity on if BIS plans to formally replace the AI diffusion rule with something else? I I don't want to replace the diffusion rule because I don't think the rule is worth replacing. It's a bad rule and we're glad that it's gone.
▶ 2:09:07We're glad that it's not being enforced and it would have it would have stymied the global AI Um so we don't want to replace it. Um there will be future regulatory action in the area of of chips and AI. Um it's a quickly evolving area and the rules need to keep up with it. Um but but we're not going to replace
▶ 2:09:31So so the AI action plan specifically calls on BIS to encourage partners to follow US export controls by using tools such as the foreign direct product rule and secondary tariffs. Allied export controls are still significantly weaker than our protocols but BIS hasn't yet used these tools to achieve alignment. Are there certain authorizations that you don't have that prevent you from doing what you need to do which we could work on here in Congress to help you?
▶ 2:10:00Well I think we have the authority. I think that you know the administration is constantly attending to both myself and BIS and the administration as a whole constantly attending to this issue of disparity between our export control our export control regime and those of our partners and allies. And as I as I mentioned previously we're set on remedying those disparities.
▶ 2:10:22Well I I appreciate everything you do as as someone who Iran just turned into a LEGO figure last night. I think the the the influence of AI around the world is can be good and it can be bad and I certainly hope as we move forward it's us that are in charge and not bad guys. So thank you for being here and Mr. Chairman I yield back.
▶ 2:10:39Absolutely. I would love to see that LEGO figure. Representative Dean you're
▶ 2:10:44Thank you Chairman Mast and Ranking Member Meeks for holding this hearing. Thank you Under Secretary Kessler for being here and giving us updates and informing us today. Under Secretary, last year you testified that one of your top priorities was to bolster enforcement by adding staff. I wanted to follow up on that. Given the budget increase BIS got last year, what progress have you made in bolstering resources, staffing focused on
▶ 2:11:13This year we've hired and I can get you the exact numbers after the hearing but we've hired about 70 people, added about 70 people and and almost all of them are in enforcement. And we're going to continue to do that through the end of the fiscal year. We have already selected more candidates to add to enforcement. There should be about 60 more coming in the by the end of the
▶ 2:11:34That was my next question. What vacancies do you have?
▶ 2:11:37Yeah and that that includes that includes the additional export control officers that I was discussing with other members. So on that front we'll go from 12 to 25.
▶ 2:11:49What how many vacancies total?
▶ 2:11:51Well we we are aiming to onboard about 60 more people by the end of this fiscal year. And then of course if the appropriation if the budget request is approved then we'll have we'll have hundreds more in the following fiscal
▶ 2:12:05Yeah the budget request is nearly
▶ 2:12:08Yeah, okay. Under Secretary, I am worried that US made technologies including microchips continue to be found in Russian military systems, deeply undermining our support for Ukraine in fighting back against Russia's illegal war of aggression. Uh and I know many of my colleagues have raised these things. I'm troubled by the weakening of export controls in this administration.
▶ 2:12:33Uh as others have discussed, BIS has not added a single entity to the entity list since October of last year. It's at its lowest level, if I'm reading the charts correctly, since 2008. Uh no doubt eroding the efficacy of the list. Is staffing an issue there? Why have you not added others to the entity
▶ 2:12:54Well, I have a different perspective. Um that enforcement of the list is
▶ 2:12:59I did hear you say that, but let's talk about adding of entities. Of course, I encourage enforcement. Let's talk specifically about adding entities.
▶ 2:13:07When we see a national security risk, we respond forcefully. Whether Whether it's through adding an entity to the list, we also have other tools available, including isn't form letters, including enforcement actions, and other authorities that other parts of
▶ 2:13:22Are you concerned when you see that gap, October till now? Uh are you concerned? Do you question your team and say, "What's going on here? Why Why have we not added
▶ 2:13:32That's not how I measure success. Um my perspective is that enforcement is extremely strong now. It's stronger than it ever has been, and that's the path that we need to continue on.
▶ 2:13:42What has enforcement gotten us?
▶ 2:13:44Enforcement has gotten us stronger Um it's gotten us uh you know, uh an awareness within the business community that export controls aren't merely a cost of doing business. They're something that companies actually need uh actually need to plan around and change their behavior around. why why are these technologies still showing up in military equipment?
▶ 2:14:10Well, I think that first of all, I think that the penalties ought to be even higher um and uh you know, that's partly uh something that we can achieve through a legislative fix.
▶ 2:14:21Of course, the penalties on Russia should be higher also.
▶ 2:14:24Sure. Yeah, penalties across the board. There's a statutory cap on penalties which we think should be higher. but, you know, the types of situations that you're referring to, this leads to enforcement actions, right? If we see that US technology is recovered on the uh of a of a country that shouldn't have those technologies, it leads to enforcement actions which can lead to penalties which can lead to deterrence.
▶ 2:14:46down on the Russia piece specifically. Uh how many staff at BIS are focused solely on enforcement with regard to I'm You can imagine uh like so many of us totally uh engaged in Ukraine and why in God's name we have not been more uh effective in bringing peace to Ukraine and and putting down this aggressive um set of moves and war crimes by Mr. Putin. So, how many staff are focused solely on enforcement with regard to
▶ 2:15:16Well, we don't We don't
▶ 2:15:18The number. We We don't We don't split up um uh generally, we don't split up officials that way like devote them to individual countries, but we do have dozens of at least dozens of uh staff members who are focused on country group D5 countries and enforcement issues
▶ 2:15:34Well, I I I know my time is up and I thank you. Uh we're all concerned that BIS is under-resourced um
▶ 2:15:40but I I very much worry. Uh how are those resources being used and how are we really curtailing uh the malign uh things that are going on. So, I thank you for your testimony. I yield back.
▶ 2:15:51Representative Moylan. No. Okay, then we will go to Representative I'm going to Miller or Burchett? Miller, you're up.
▶ 2:16:04Thank you, Mr. Chairman.
▶ 2:16:05You're welcome.
▶ 2:16:06I'll take advantage of my opportunity. Uh thank you, Mr. Chairman, and thank you, Under Secretary Kessler, for taking the time to meet with us today. When we think about strategic competition with the People's Republic of China, most folks probably think about the Department of War, the CIA, or maybe even the State Department. But one extremely important and often overlooked agency on the front lines of this fight is the Bureau of Industry and Security, also known as BIS, uh at the Department of Commerce.
▶ 2:16:32What should make every American proud is the fact that the road to success for the CCP runs through the theft of American technology and talent, not their own. It is for that reason that no other country on Earth spends more time and money trying to steal our technology and trying to get the edge other than China. Fortunately, we have BIS to enforce our export controls to stop them.
▶ 2:16:54However, current statute is not without loopholes and workarounds that our enemies Under the Under the Export Control Reform Act, the definition of foreign person is too narrow to include the US incorporated affiliates of companies that are subject to export controls. Meaning that all an entity list company must do is access sensitive technology is to establish a US affiliate company, which seems to be pretty easy to do.
▶ 2:17:19I introduced the Adversaries Act to have the Office of Information and Communications Technology and Services evaluate this loophole and enhance BIS's ability to address this problem that we currently have. Under Secretary Kessler, once again, thank you for being here. Uh sure it's going to be, you know, little bit longer, shouldn't be too much longer.
▶ 2:17:37Um under your leadership, has BIS looked into this problem, and do you believe that an expansion of BIS authority to list US incorporated entities affiliated with foreign adversarial companies on the entities list is necessary?
▶ 2:17:52Thanks for the question. I mean, I I obviously we spent a lot of time on enforcement issues related to the entity list. As I mentioned, uh you know, one of the priorities has been to make licensing more effective as regards companies that are on the entity list. Why we shouldn't shouldn't be rubber stamping license applications for exports to companies on the entity list. Uh you know, in general, uh I support legislation that would expand Commerce's enforcement authority.
▶ 2:18:21Um and so I'm happy to take a look at the legislation that you mentioned and then work with you on it.
▶ 2:18:25Yeah, thank you very much. Uh Michael from our team has been doing a fantastic job and we'll get it over to you and your team uh so we can hammer out the issues. But it's definitely something that we could work together and find a lot of common ground.
▶ 2:18:35Sounds great. Yeah, sounds great. Thank
▶ 2:18:37And just can you give us some insight into how widespread, you know, really this problem is or that you're seeing? Uh and as I'm talking about it, do we have, you know, good visibility into instances where our adversaries are using this, you know, circumvention tactic right now? We know that there is a lot of circumventing and diversion that goes on all the time. We don't know uh the full extent of it, uh but we can guess based on our experience.
▶ 2:19:06Um also just based on the case load that our enforcement officers uh they have an enormous number of uh cases and leads per agent, which suggests that there's you know, I as I mentioned in my testimony, far more than their counterparts at pure enforcement agencies. And that suggests that there are unfortunately a lot of enforcement activity uh sorry, a lot of a lot of um violation that goes undetected. Uh and so that's part of the reason that we're asking for the budget increase for
▶ 2:19:37Yeah, well, I believe it is it is needed and you guys are doing a a phenomenal job and thank you for, you know, making sure our country is safe. Thank you, Mr. Chairman. I yield back.
▶ 2:19:47Representative Johnson.
▶ 2:19:49Thank you, Mr. Chairman. Um Under Secretary Kessel, thank you for being here today. Um the Bureau of Industry and Security plays an important role in enforcing our nation's export controls, protecting our critical industries, and securing our most sensitive technologies.
▶ 2:20:04These issues have been among my key priorities during our tenure in Congress, and I'm very proud to have introduced the bipartisan Whistleblowers Aiding National Security Act, which would ensure that whistleblowers have a protected pathway to the State Department to report export control I wanted to acknowledge Representative Keen and his shout-out to my bill while he was here during his time and to the importance of it.
▶ 2:20:28Many many members today um have asked you about the importance of export controls and whistleblower And um I think through some of your prior testimony you acknowledged that this is a very important tool that the federal government has.
▶ 2:20:46Yeah, thanks for the question. I mean, as I mentioned in response to the other question, we we have significant enforcement activity, leads, cases that are the product of whistleblower reports. So, I think this is an important part of our enforcement
▶ 2:21:02Yes, and so Mr. Chairman, I hope that we I know this has passed through the committee. I would love to see it on the floor and get this thing through the finish line. because I do think that whistleblowers play a critical role in our export control environment in particular. Um you've had a lot of questions from both sides of the aisle.
▶ 2:21:23There's a lot of concern here in the Congress over China having an unfair advantage in the AI and making sure that we have US dominance in that space. And we I hope you're hearing the concerns, sir, that this committee has about the lack of updating of our lists. The lack and your defense of that hasn't really answered anyone's questions about why new actors aren't being added to our monitoring lists.
▶ 2:21:52is very concerning to us because Russia's consistently renaming companies, new companies are are morphing into different entities there is a gap. And I hope that if rather than taking a very defensive posture on that topic that you'll listen to the concerns of members of both sides of the aisle on this issue and you'll go back and take a good hard look at the practices that your agency has been engaging in to address this gap of our security because it's something that this body,
▶ 2:22:22our members on this committee, are very, very concerned about. Um another issue I wanted to talk about China for a second. In April, over 70 of my colleagues and I signed on to a letter led by Congressman Dingell opposing backdoor market access for Chinese automakers in the US.
▶ 2:22:42The Biden administration's Department of Commerce implemented strict restrictions on these imports and yet this recently announced an exemption for at least one China-connected automaker. Since your bureau granted the exemption, the Chinese government released new standards requiring all new vehicles to support continuous monitoring data recording and remote management.
▶ 2:23:07So you granted an exemption for China to have an automaker in this country that after that exemption was granted, then China reformed its rules requiring continuous surveillance. I'm very, very concerned about that, So how are you going to mitigate the concerns that a China-connected company that you granted an exemption to one day can be required by the Chinese government to fill software with spyware on our people?
▶ 2:23:36Well, first of all, I want to clarify the I think the rule that you're referring to, we the Trump administration is the only administration that's implemented this rule. The prohibitions kick in in mild year 2027, which is now. Um so, uh you know, we are the ones who are leading the implementation and enforcement of this rule. The you're asking about a particular we call them specific authorizations.
▶ 2:24:01A particular is a license essentially um for companies to operate in the United States, continue to sell despite the prohibitions that are in place under this rule. What I can tell you uh is that we ensure that there are very strong national security conditions in any license of that type.
▶ 2:24:21Um very robust conditions, which would prevent the the exfiltration of data to a foreign Um we ensure that the tech stack is is clean, and we put safeguards in place to make sure that that's the case.
▶ 2:24:38Well, sir, you would I'm running out of time, but I just want to end with obviously, it's very concerning that we would grant exemptions to Chinese companies in this country given their assault on our technological security, and I think it's something that the administration needs to look at very closely, and I'm out of time. I yield
▶ 2:24:56Mr. Kessel, you have the distinct uh honor of witnessing a new member here, Representative Gallagher, who just joined our committee. It is committee tradition that new members give us a fun fact about themselves.
▶ 2:25:14Thank you, Mr. Chairman. It's a it's a pleasure to be joining the committee, and uh thank you for that opportunity. Uh I think maybe the fun fact is uh I'm a sixth-generation Californian. so, my family, you know, came uh to this great country, settled in California, and we liked the place, so uh you know, we stayed a while.
▶ 2:25:34It's not really tradition, but thanks for giving us a fact.
▶ 2:25:36Thank you.
▶ 2:25:37What part of California is this?
▶ 2:25:38This is Northern California, just south of Yuba City, California, Mr. Chairman.
▶ 2:25:45Max Miller
▶ 2:25:46I'd love to have you sometime out.
▶ 2:25:48Look forward to joining you. Max Miller could have warned you, but he he chose also not to warn you though. Mess with you.
▶ 2:25:58Thank you, Mr. Chairman.
▶ 2:25:59You're recognized. You can ask all the questions you want right now. You get 10 minutes. No, you get 5. I'm just kidding.
▶ 2:26:04I am good. I've been listening very much to the conversation. I think very interesting conversation right there. California, actually our governor has done a lot of exemptions and and benefits for Chinese companies. So, I'm very glad to see some real enforcement from your department on that front and ensuring that we don't allow those those types of things to happen. So, congratulate you on on that work.
▶ 2:26:27Obviously, these are very important to us to ensure that we're not having you know, China get smuggled um you know, uh uh and and I and so I appreciate your work and we'll continue to be monitoring that and and working with you. Thank
▶ 2:26:45Thank you. All right, we'll leave you alone. Representative Burchett You ready, my friend? Number one in our hearts.
▶ 2:26:54435 on the chart. Thank you, sir. Mr. Under Secretary, I want to ask you several questions and as the 435th most powerful member of Congress, I usually go towards the end of most of these discussions. So, everyone else
▶ 2:27:07over this, Tim. He's number 435.
▶ 2:27:10New what?
▶ 2:27:11He's new. He's number 435. You can't be 435 anymore.
▶ 2:27:14just step in and take my spot, Mr. Mr. Chairman. But, what I I reclaim my time? No, I hate it when people say that. It sounds so arrogant. Uh but, anyway, um I want you to act like every one of my questions is one of the most brilliant questions you've ever heard since I'm sure you've already heard them multiple times. And as Max Miller droned on about something I wasn't really I'm sure what he was paying attention to. He told me I don't pay attention very well and I I really not Sir, and he mumbled something about that.
▶ 2:27:43I wasn't really paying much attention when he told me that, so Sir, how is the Bureau of Industry and Security planning to align its priorities with US national security
▶ 2:27:55Well, strong enforcement. It starts with strong enforcement, sir.
▶ 2:27:58Is your Is your microphone on?
▶ 2:28:00I'm sorry, is there what?
▶ 2:28:02I couldn't hear you. Is that better?
▶ 2:28:05Yes, sir. Yeah, it starts with strong enforcement. Um you know, we have extensive rules that restrict the exports of goods and software and technology to foreign adversaries. Uh we need to enforce those rules. In the past, that hasn't happened. And that's why our budget request focuses on stronger enforcement, bigger enforcement, uh and making sure that that we have an effective deterrent in place.
▶ 2:28:30It didn't It didn't pass over my publicly educated brain that my colleagues across the aisle and they um they tend [clears throat] to forget that they were in power for years and it was pretty much wide open. And now you're seeing the adults in the room and and they're acting as if uh something that you know, they got the rug jerked out from under them. I just I find that kind of odd.
▶ 2:28:56I'm sure you do, too, but increased export controls can lead to overregulation of American businesses while countries like China bypass the Do y'all have an an oversight mechanism to combat that?
▶ 2:29:10Sorry, to combat what?
▶ 2:29:12Combat um Let's uh let me go back over it. Um I'll just read restate the question, if that's all right. Increased export I reclaim my time. Increased export controls can lead to overregulation of American businesses
▶ 2:29:29Yeah, no. I mean, of course we want to avoid overregulation, right? And as I mentioned in response to some of the other questions, more regulations don't equate to more safety. We need to be careful about that. Um export controls that carry serious penalties, uh we want companies to invest in compliance, but because of that, we need to be careful when we impose new requirements that that that we're not re- you know, we're not forcing companies to over invest in something that doesn't have a national security dividend.
▶ 2:30:01Okay. Why why is the Bureau of Industry and Security licensing process so time
▶ 2:30:06Well, for the vast majority of licenses, the process is fast and efficient. Right? As I mentioned in response to some of the other questions, the average processing time in 2025 is about the same as in 2024, and that's 60 days. Uh for many types of licenses, uh that uh for for different reasons can be approved more quickly they are, sometimes in in a matter of weeks. Um the licenses that we apply more scrutiny to, there's a reason.
▶ 2:30:36Um the licenses that involve sensitive technologies, that involve entity listed companies, um that involve sensitive regions of the world, those are the ones that we are very careful with. And I think again, I think that that's the appropriate way to handle those kinds of licenses because we don't want rubber
▶ 2:30:55Do you all have a plan to ex- expedite any of that that you're having that you have delays
▶ 2:31:02We want to expedite all of it, right? The the goal is to make all licenses go through the system as quickly as possible, but we don't want to compromise national security.
▶ 2:31:10Yeah, I think sometimes we tend to throw the baby out with the bathwater on that. And I I agree with you on that. Mr. Chairman, I yield back my 36
▶ 2:31:20This is the end of the hearing. I mean, do you want to close it out, Mr.
▶ 2:31:24Maybe a little song?
▶ 2:31:25If that's what you like. If I know it, I'll join you.
▶ 2:31:27That's okay. I'll try this. is I'm a singer as you know, and this is not a union setting, so I'd be violating my my own rule.
▶ 2:31:37River or something, you don't want to sing that?
▶ 2:31:39Okay. All right.
▶ 2:31:41Thank you so much though.
▶ 2:31:42You're welcome. Another day.
▶ 2:31:44Under Secretary Kessler, thank you for joining us today. I see no more individuals requesting to ask you Thank you for your valuable testimony. I thank members for their questions. Members of the committee may have some additional questions for you, Under Secretary. We will ask that you respond to those in writing, and this committee stands adjourned.