[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
REVIEWING THE BUREAU OF INDUSTRY AND
SECURITY, PART II: U.S. EXPORT CONTROLS
IN AN ERA OF STRATEGIC COMPETITION
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HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND
ACCOUNTABILITY
OF THE
COMMITTEE ON FOREIGN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
December 12, 2023
__________
Serial No. 118-117
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Printed for the use of the Committee on Foreign Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available: www.foreignaffairs.house.gov, docs.house.gov,
or www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
59-483 PDF WASHINGTON : 2025
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COMMITTEE ON FOREIGN AFFAIRS
MICHAEL T. McCAUL, Texas, Chairman
CHRISTOPHER H. SMITH, New Jersey GREGORY MEEKS, New York, Ranking
JOE WILSON, South Carolina Member
SCOTT PERRY, Pennsylvania BRAD SHERMAN, California
DARRELL ISSA, California GERALD E. CONNOLLY, Virginia
ANN WAGNER, Missouri WILLIAM KEATING, Massachusetts
BRIAN MAST, Florida GABE AMO, Rhode Island
KEN BUCK, Colorado AMI BERA, California
TIM BURCHETT, Tennessee JOAQUIN CASTRO, Texas
MARK E. GREEN, Tennessee DINA TITUS, Nevada
ANDY BARR, Kentucky TED LIEU, California
RONNY JACKSON, Texas SUSAN WILD, Pennsylvania
YOUNG KIM, California DEAN PHILLIPS, Minnesota
MARIA ELVIRA SALAZAR, Florida COLIN ALLRED, Texas
BILL HUIZENGA, Michigan ANDY KIM, New Jersey
AUMUA AMATA COLEMAN RADEWAGEN, SARA JACOBS, California
American Samoa KATHY MANNING, North Carolina
FRENCH HILL, Arkansas SHEILA CHERFILUS-McCORMICK,
WARREN DAVIDSON, Ohio Florida
JIM BAIRD, Indiana GREG STANTON, Arizona
MICHAEL WALTZ, Florida MADELEINE DEAN, Pennsylvania
THOMAS KEAN, Jr., New Jersey JARED MOSKOWITZ, Florida
MICHAEL LAWLER, New York JONATHAN JACKSON, Illinois
CORY MILLS, Florida SYDNEY KAMLAGER-DOVE, California
RICH McCORMICK, Georgia JIM COSTA, California
NATHANIEL MORAN, Texas JASON CROW, Colorado
JOHN JAMES, Michigan BRAD SCHNEIDER, Illinois
KEITH SELF, Texas
Brendan Shields, Majority Staff Director
Sophia Lafargue, Minority Staff Director
------
SUBCOMMITTEE ON OVERSIGHT AND ACCOUNTABILITY
BRIAN MAST, FL, Chairman
SCOTT PERRY, Pennsylvania JASON CROW, CO, Ranking Member
DARRELL ISSA, California DINA TITUS, Nevada
TIM BURCHETT, Tennessee COLIN ALLRED, Texas
FRENCH HILL, Arkansas ANDY KIM, New Jersey
MIKE WALTZ, Florida SHELIA CHERFILUS-MCCORMICK,
CORY MILLS, Florida Florida
NATHANIEL MORAN, Texas MADELEINE DEAN, Pennsylvania
Parker Chapman, Subcommittee Staff Director
C O N T E N T S
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Page
REPRESENTATIVES
Opening Statement of Subcommittee Chairman Brian Mast............ 1
Opening Statement of Subcommittee Ranking Member Jason Crow...... 3
WITNESSES
Statement of Thea D. Rozman Kendler, Assistant Secretary for
Export Administration, U.S. Department of Commerce............. 4
Prepared Statement............................................... 7
Statement of Matthew S. Axelrod, Assistant Secretary for Export
Enforcement, U.S. Department of Commerce....................... 18
Prepared Statement............................................... 20
APPENDIX
Hearing Notice................................................... 52
Hearing Minutes.................................................. 53
Hearing Attendance............................................... 54
Responses to Questions for the Record
Questions for the record submitted by Representative Mast........ 55
Questions for the record submitted by Representative Issa........ 64
REVIEWING THE BUREAU OF INDUSTRY AND
SECURITY, PART II: U.S. EXPORT CONTROLS
IN AN ERA OF STRATEGIC COMPETITION
----------
Tuesday, December 12, 2023
House of Representatives,
Subcommittee on Oversight and Accountability,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 2:43 p.m., in
room 2200, Rayburn House Office Building, Hon. Brian Mast
(chairman of the subcommittee) presiding.
Mr. Mast. Subcommittee on Oversight and Accountability will
come to order. The purpose of this hearing is to examine the
effectiveness of the U.S. export control policy and
implementation. As competition with China and American
technology exports become increasingly important to our
national security, the Bureau of Industry and Secretary's role
is more important than ever. I now recognized myself for an
opening statement.
OPENING STATEMENT OF CHAIRMAN BRIAN MAST
There are members on both sides of this committee and some
that will show up as we move on that have served in uniform in
the U.S. military. I think we can all attest to the fact that
there are differences between actions taken by soldiers on the
battlefield and decisions made by politicians on Pennsylvania
Avenue.
You all are the soldiers, and there are politicians on
Pennsylvania Avenue above both of you. I look at the Bureau of
Industry and Security in a similar way that I look at the
battlefield. The Bureau of Industry and Security is tasked with
keeping American technology out of the hands of our adversaries
via export controls.
Any failure to do so in my estimation and what I've looked
at is largely the fault of the Office of the President and
their failure to use this tool and actually counter China with
every mechanism that we have available to do so. In the 7-
months since the first hearing, it's become more clear to me
that the Biden administration has not adapted to the emerging
cold war that we have with China. Our country in some
circumstances has become less safe.
In August of this year, Huawei released its Mate 60 Pro
phone which uses a seven nanometer chip made by SMIC. This is a
highly advanced chip, making it incredibly likely that it was
developed with American technology. If true, SMIC acquired that
technology because of President Biden's refusal to fully
utilize the Bureau of Industry and Security and all of their
capabilities to stop it.
Unfortunately, that is not a surprise given some of the
things that we've seen under the Biden administration. The
Bureau of Industry and Security has had a lax of approvals of
licenses for American technology to both SMIC and Huawei. In
one 3-month period, the Bureau of Industry and Security denied
less than 10 percent of entity listed People's Republic of
China company license applications, and we consider that
problematic.
We now know that these companies are intertwined with the
Chinese Communist Party. That means that the CCP has our
technology and can use it to oppress its own citizens or to
harm our citizens if they wish. In another example, in November
of this year, BIS removed the Institute of Forensic Science,
IFS, from its entity list, we will probably speak about this as
this hearing goes on, potentially ending all export controls
and opening the door for American tech to flow through the
Institute for Forensic Science for the first time in 3 years.
That could be problematic.
For those who may not be familiar, the State Department
found that the Institute of Forensic Science was implicated in
human rights violations and abuses against Uyghurs. If true,
it's another example of the Biden administration's willingness
to appease the enemy even if it means giving away our strategic
advantage--one of our strategic advantages. Pushing for
appeasement is one of the Chinese Communist Party's greatest
tactics in stealing American technology among the others that
they use.
As this committee's recent report detailed, the evidence
has continued to mount. The Bureau of Industry and Security has
a duty to set and enforce rules that protect American national
security under the Export Control Reform Act of 2018. But under
the Biden administration's leadership, there have been places
that they have not executed this.
Imagine if at the heart of the cold war news broke that the
Soviet Union had developed and launched Sputnik thanks to
stolen American technology. We would all consider that
incredibly worrisome. That's not just a situation we could find
ourselves in.
It's a situation we did find ourselves in 10 months ago as
a Chinese spy balloon floated across the continental United
States, a spy balloon that used stolen American technology to
spy on Americans. That balloon might as well have been designed
like the Goodyear blimp with a sign on it that says where it
was brought to you by. I look at this situation and I think
that there is work that's being done.
If that can be done better. I think there are places that
you are being restrained and held back. It's to the detriment
of our national security.
Xi Jingping is gearing up for a fight. He's made that
clear. President Biden needs to match that commitment. I will
just make one more analogy as it relates to export controls,
and that is simply to say this.
You could deny something to me and be effective in doing
that. But if you gave that technology to one of my four
children or gave it to my spouse, then you are essentially
giving that technology to me because I can and will be able to
get my hands on it. I believe that's the way that we need to
more strictly look at China.
We do a good job at looking at where this is taking place
as we've discussed, things that go boom, things that explode.
But we have to make sure that we're looking at every avenue
that they could acquire any of our dual use technologies and
make sure we're examining just because it's not an agency that
necessarily uses items to make things go boom, that they're not
taking that and getting it to one of the other members of their
family.
In that, I will conclude my remarks and I will yield to
Ranking Member Crow for any remarks that he may have. Mr. Crow,
you're now recognized.
OPENING STATEMENT OF RANKING MEMBER JASON CROW
Mr. Crow. Thank you, Chairman Mast. Today, we examine the
U.S. export control policy and significance for our national
security and foreign policy. I welcome our witnesses as the two
U.S. Government officials most directly responsible from
imposing and enforcing export controls, and I look forward to
having a substantive discussion with both of you.
We met in the subcommittee to discuss the Department of
Commerce Bureau and Industry and Security several months ago. A
few themes emerged that these witnesses are particularly well
suited to address. The first is that export controls are a
powerful tool that can be used to cutoff access to valuable
American products and technologies that the PRC, Russia, Iran,
and others would use to undermine U.S. security and commit
human rights violations.
The second is that the Biden administration and many in
Congress support a more robust use of export controls. The
third is one of resourcing. BIS ensures that U.S. products and
technologies are not used against us or our allies while
safeguarding our economic strength in the private sector.
Despite licensing requests doubling since 2010, BIS' budget
for core export control activities has essentially been flat
over the same time. Congress has not resourced BIS adequately.
The Biden administration's use of export controls has been
broad and historic in countering Russia and China and more
aggressive than any prior administration.
A staggering 41 percent of the total number of entities
listed on the entities list were added under this
administration. We have exercised global leadership as we
counter these actors. In response to Russia's invasion of
Ukraine, the administration built a coalition with 38 other
countries, imposing stringent export controls on Russia and
Belarus, the largest and most coordinated effort of its kind
outside of a multilateral regime and a model for future
policymaking.
The Biden administration listed hundreds of PRC-based
entities and took unprecedented unilateral steps to restrict
the PRC from obtaining technologies and tools in the advanced
computing and semiconductor manufacturing space. After limiting
historic controls in October 2022, the administration persuaded
critical allies like Japan and the Netherlands to impose their
own controls, a development that helps multilateralize our
policies on China. Congress' oversight of export control policy
must assess balance.
We cannot export sensitive and advanced critical technology
to China that undermines our national security. At the same
time, our controls must be targeted so they do not harm the
U.S. economy and impede U.S. companies from becoming global
leaders in these technologies. It's a delicate balancing act.
But to win the strategic competition, it's critical that we
do both. I look forward to the witnesses speaking to how the
administration has advanced export control policy with this
balance in mind. In closing, I want to acknowledge the
majority's recently released report on BIS.
This report makes a number of claims, some of which I
believe are misleading, about BIS and the administration's
export control record that are worth debating. Chief among
these is an assertion that BIS' primary objective is to protect
U.S. national security. The first statement of policy in the
Export Control Reform Act of 2018 is, quote, to use export
controls only after a full consideration of the impact on the
economy of the United States, end quote.
Congress recognized that economic security requires
safeguarding both our national security and our ability to be
global leaders in innovation and technology. So with that in
mind, I hope we can spend some time today on oversight
discussions, including areas where BIS can improve ways to
advance long-term U.S. economic and technological superiority,
strengthening coordination with partners and allies, and giving
BIS the tools and resources it needs to enforce our policies
effectively. With that, I yield the balance of my time.
Mr. Mast. Thank you, Ranking Member Crow. Other members of
the committee are reminded that opening statements may be
submitted for the record. We're pleased to have two
distinguished panel of witnesses before us today for this
important topic.
First, Hon. Ms. Thea Kendler is the Assistant Secretary for
Export Administration and at the U.S. Department of Congress.
She joined BIS as an experienced export controls, sanctions,
and national security attorney coming directly from the
Department of Justice's National Security Division. Prior to
this, she worked in the BIS' counsel office for 10 years.
Next, we have Hon. Matthew Axelrod. He's the Assistant
Secretary for Export Enforcement at the U.S. Department of
Commerce. Before his time at BIS, he spent over 13 years at the
U.S. Department of Justice in numerous high level roles and
served as special counsel in the Office of the White House
Counsel.
We thank you both for being here today. Your full
statements will be made part of the record. I'll ask that each
of you keep your spoken remarks to 5 minutes in order to allow
time for members to ask their questions. I now recognize you,
Assistant Secretary Kendler, for your opening statement.
STATEMENT OF THEA KENDLER ASSISTANT SECRETARY FOR EXPORT
ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE
Ms. Kendler. Thank you, Chairman Mast, Ranking Member Crow,
distinguished members of this committee. Thank you for inviting
me to testify about the Biden administration's ongoing efforts
at the Commerce Department's Bureau of Industry and Security to
advance U.S. national security and foreign policy interests by
controlling exports and promoting continued U.S. strategic
technology leadership. I appreciate the opportunity to work
with you and your staff on these critical issues to ensure that
we're effectively countering China's military modernization and
human rights abuses, degrading Russia's ability to wage war on
Ukraine, identifying and controlling technologies critical to
protecting our national security, and collaborating with
international allies and partners as we pursue these
priorities.
Through export administration's licensing officers, trade
data and industry analysts, and our growing international
policy and intelligence analysis teams, we identify sensitive
U.S. technologies that would give our adversaries an advantage.
We developed the policies and strategies to protect such
technologies. We assess the availability of foreign technology
and the effectiveness of our controls as well as foreign end
users that require extra scrutiny.
We then adopt export controls on both technology end users.
Technology controls are based on the performance specifications
of an item. The controls put in place on advanced
semiconductors and semiconductor manufacturing equipment to
China are an example of this.
By controlling items with the most advanced applications on
a countrywide basis, we are able to deny the PLA, the People's
Liberation Army, the hardware necessary for advanced computing
capacity it desires to train artificial intelligence modes and
for other military applications. We use end user controls to
deny items to particular entities. These controls are imposed
when there are specific and articulable facts that an entity is
engaged in activities contrary to U.S. national security or in
foreign policy interests.
Of the 787 PRC-based entities on the entity list, 303 or
more than a third have been added in the Biden administration.
Together with our interagency partners in the Departments of
Defense, Energy, and State, we have the serious responsibility
of imposing technology and end user controls as well as
reviewing license applications submitted by exporters to
determine whether specific transactions are consistent with
U.S. national security and foreign policy interests. Each of
these agencies brings its unique expertise and understanding to
the analysis, complemented by input from our intelligence
community and law enforcement partners.
All licensing decisions are made by the interagency in
collaboration with each other. Export controls are not static.
We must continually assess and refine our approach and our
controls to maximize their impact.
As noted in the Export Control Reform Act of 2018, our
controls are more durable and more effective when posed
alongside international allies and partners. Let me share some
actions that we've taken in these regards. This fall, we
updated last year's artificial intelligence chips and
semiconductor manufacturing controls to reflect our assessment
of China's future advance computing needs to support the PLA's
military modernization.
We're working with stakeholders now and welcome the
continued engagement of this committee on a new approach to
cloud computing controls as well. At the same time, we're
carefully reviewing Russia's technology needs as it wages war
on the innocent people of Ukraine. We have imposed sweeping
export controls on Russia and Belarus and added to our
comprehensive controls on Iran to choke off exports of
technologies that support Russia's defense industrial base.
While the impact of our export controls will only increase
over time as Russia is unable to repair, replace, and replenish
its military hardware, we are seeing substantial impacts of our
actions in the data available to date. Just last week, we
published a package of rules designed to increase collaboration
with international allies and parties and streamline trade with
these countries that share our approach to the advanced
technology ecosystem. Our export controls work has never been
more relevant or more effective.
We are aggressively and appropriately contending with the
strategic technology threats facing our Nation and will
continue to use all the tools at our disposal to counter
efforts to outpace the United States and our allies. Thank you,
and I welcome your questions.
[The prepared statement of Ms. Kendler follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mast. Thank you, Ms. Kendler. I now recognize Assistant
Secretary Axelrod for your opening statement.
STATEMENT OF MATTHEW S. AXELROD, ASSISTANT SECRETARY FOR EXPORT
ENFORCEMENT, U.S. DEPARTMENT OF COMMERCE
Mr. Axelrod. Thank you, Chairman Mast, Ranking Member Crow,
distinguished members of the committee. Thank you for inviting
me to testify today on our ongoing efforts to help deny nation
State adversaries access to sensitive U.S. technologies by
enforcing U.S. export controls. As the Assistant Secretary for
Export Enforcement, I oversee a team of law enforcement agents
and analysts who carry out a critical national security
mission, keeping our country's most sensitive technologies out
of the world's most dangerous hands.
At no point in history has this mission been more
important. As our intelligence community's most recent annual
threat assessment notes on its very first page, quote, Russia
is challenging the United States and some norms in the
international order in its war of territorial aggression--China
has the capability to directly attempt to alter the rules-based
global order in every realm and across multiple regions.
Iran will remain a regional menace with broader malign
influence activities. North Korea will expand its WMD
capabilities while being a disruptive player on the regional
and world stages. Here's what my team has been doing to meet
this unprecedented national security moment.
First, we've enhanced our enforcement policies to
prioritize enforcement against the most pressing threats,
including China, Russia, and Iran while also incentivizing
compliance and deterring violators. Second, we've expanded our
partnerships at home and abroad to leverage resources that
increase our effectiveness. Third, we've taken aggressive
enforcement actions to impose real costs on those who seek to
violate our rules and undermine our national security.
On enforcement policies, we've acted to ensure that our
finite resources are best positioned to have maximum national
security impact. Last June, for example, we announced that we
are raising penalties, prioritizing the most serious cases,
eliminating no admit, no deny settlements, and making our
administrative charging letters public when filed. Last
October, we issued a policy announcing that when a foreign
government fails to schedule our end use checks in a timely
way.
We'll seek to move the unchecked parties onto our
unverified list and then onto the entity list. In the years
since the policy issue, we've completed over 130 checks in
mainland China after 2 years of having been prevented from
doing a single one. We've also changed how we track our
investigative and analytic efforts so that we can best evaluate
how close a fit is between our highest priorities and how we
are spending most of our time.
Next, partnerships. Given the scope of the threat we face
in protecting U.S. technology from misappropriation, we must
amplify our efforts through robust partnerships. It's why we
joined with the Department of Justice, FBI, and HSI to form the
Disruptive Technology Strike Force which works to protect
advanced U.S. technologies from being illicitly acquired by
nation State actors such as China, Russia, and Iran. We also
have developed close partnerships with industry, academia
through our academic outreach initiative, the intelligence
community, and Treasury components like OFAC and FinCEN.
In the past year, we've put out multiple joint alerts and
advisories with these partners designed to educate industry and
academia on how best to comply with our rules and detect
violations of them. We also work closely with our international
counterparts to coordinate on enforcement. In fact, just last
month, I traveled to Kiev with strike force colleagues from DOJ
and FBI.
While there, we met with Ukrainian officials to discuss
what more we can do to help degrade the Russian war machine.
Finally, our enforcement actions, this past fiscal year, we had
a record high number of both criminal convictions and
administrative actions. Let me give you just a few examples.
First, since Russia's full scale invasion of Ukraine, we've
worked with DOJ and FBI to bring more than ten separate
indictments charging over 30 people for their role in procuring
microelectronics and other dual use items for the Russian
military. Second, earlier this year, we announced a 300 million
dollar penalty against Seagate technology for selling hard disk
drives to Huawei even after Seagate's only two competitors had
stopped selling due to our foreign direct product rule. It's
the largest standalone administrative penalty in our history,
and it sends a clear message about the need for companies to
comply with our rules and about the power of our administrative
enforcement tools when they don't.
Third, just last week, in a great example of our all tools
enforcement approach, DOJ unsealed two indictments against the
Belgian national for allegedly exporting missile and drone
components to China and Russia. We're working these cases
alongside FBI, HSI, and other Federal law enforcement partners.
The defendant was also arrested by the Belgian government on
charges there, placed on our entity list along with five
related parties, and placed on the OFAC SDN list all at the
same time in a coordinated way across agencies and countries.
Through our policies, our partnerships, and our enforcement
actions, we continue to take impactful steps to protect our
collective national security. Thank you again for the
opportunity to testify today about our work. I look forward to
your questions.
[The prepared statement of Mr. Axelrod follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mast. Thank you, Mr. Axelrod. No matter what, I have to
be there till the end. So I'm going to start by recognizing a
few of my colleagues here. I'll recognize Mr. Mills, No. 1.
Mr. Mills. Thank you, Mr. Chairman. I intend to be here as
well to hear this through. I love the fact and I just want to
point out, Mr. Axelrod, that you're right in noting that
Russia, China, Iran, and North Korea, their geopolitical
alignment and looking at them from an adversarial perspective
and not just a competitive perspective is certainly really
where we need to be at right now.
We know that the evolution of warfare is past and long
since the days of just kinetics and really onto the economic
resource, supply chain, and cyber-based warfare that we're all
facing today. We must be prepared for what that is to ensure
that we're not transferring key data and that we're not
allowing our innovations here at home to be utilized against us
as we've seen time and time again. I think we can all agree on
the fact that one of the biggest human rights atrocities that
we've seen in a very long time is what's been happening to the
people who are the Uyghur.
The fact that they have not only been wrongfully
imprisoned, sentenced to indentured servitude, had organ
harvesting in some cases. Many reports, there had been back
from women's prison where they're being forcibly raped. These
were all the horrendous incidents that's come to light, and we
certainly want to do everything we can to make sure these human
rights violations don't occur.
Knowing this, I wanted to kind of just touch on BIS'
removal of IFS. As you know, IFS, the Institute of Foreign
Science, collects Uyghur DNA to conduct biometric surveillance
to imprison Uyghurs in camps. And so my question, I'll start
with you, Ms. Kendler. Can you tell me why BIS removed IFS from
the entity list on November 17, 2023?
Ms. Kendler. Congressman, thank you for this question. I
share your concern about the tragedy facing the Uyghur people.
Human rights is a shared priority certainly. I would add that
the crisis facing our country from fentanyl is also a shared
priority. The work that we have done to address fentanyl
precursors with China will save lives. It is because of that
work due to our--it became clear to us that including IFS on
the Commerce Department's entity list was inhibiting the
counter narcotics action that was necessary----
Mr. Mills. I'm sorry to interrupt. But is this the Chinese
argument where the Chinese have aggressively tried to State
that since the National Laboratory for Narcotics is somewhat
co-located that we're going to acquiesce to China and go ahead
and say that IFS therefore is somehow different? Is that the
argument we're about to make here?
Ms. Kendler. We've evaluated this issue, and we agree to
explore the potential of removing IFS from the entity list if
China took major tangible action to address the flow of
precursor chemicals to save American lives.
Mr. Mills. Even though we know that China right now is
actually the leader in printing fentanyl in the Darien Gap and
actually utilizing that to come into America, to actually
poison Americans. We're still going to go ahead and acquiesce
to what China wants as opposed to what our own research is
dictated?
Ms. Kendler. China took tangible action in addressing
fentanyl precursors. There are four things that China----
Mr. Mills. What have they done to address their mainland
Chinese who are in Darien Gap actually printing fentanyl right
now? Or the fact that we actually stopped over 22 pill presses
from going to them in South America and our own hemisphere,
have don't anything about that? Is that been an important step
for us?
Ms. Kendler. Congressman, we are addressing this issue,
this crisis faced in the United States, across all areas of
work in the Biden administration. Within the sphere of export
controls, we are deeply focused----
Mr. Mills. Speaking about the President if I may, is the
President involved in entity list deliberations?
Ms. Kendler. The four agencies that participate in these
deliberations----
[Simultaneous speaking.]
Mr. Mills. Because my understanding is that the ECRA and
the EAR is the President cannot be involved in entity listings
to remove politics and maintain neutrality of the tool,
correct?
Ms. Kendler. Congressman, a unanimous vote of the end user
review committee is required to remove entities from the entity
list.
Mr. Mills. Which means that a President who could
potentially be corrupted and/or compromised by the Chinese
could actually help to influence the outcome of how BIS
actually lists or delists companies?
Ms. Kendler. Congressman, the department made the decision
to remove IFS from the entity list. I support that for national
security reasons.
Mr. Mills. Did BIS submit a request? This is a simple yes
or no. I'm the chair at ERC. Did BIS refer that request to
other members per the regulations?
Ms. Kendler. Congressman, I can't speak to that kind of
specific information about a company. But I can assure you that
no decision to remove a company from the end user review--the
entity list would be made without unanimous agreement of the
Departments of Defense, Energy, State, and Commerce.
Mr. Mills. Well, thank you so much for your testimony
today. With that, I'll yield back.
Mr. Mast. Thank you, Mr. Mills. I'll now recognize Mr. Crow
for 5 minutes.
Mr. Crow. Thank you, Chairman. I just wanted to pick up on
that line of questioning a little bit because implied in that
question and a phrase that was used a couple of times was this
sense that there was acquiescence, that we simply acquiesced to
the PRC. This is my time now.
I would like to just pull on that thread a little bit. We
don't acquiesce to other countries. We have independent data.
We have independent sources of getting information. Is that
accurate?
Ms. Kendler. Yes, sir. In the Commerce Department and with
our interagency colleagues, we look at all sources of
information in evaluating how best to protect U.S. national
security and foreign policy. That's certainly open source and
public information. But we rely very heavily on intelligence as
well in our decisionmaking.
Mr. Crow. Well, with what we can do in this room because
this is an open hearing, this is not a classified hearing. And
we can obviously go much more into that in a classified
setting. But in a nonclassified setting, can you just provide
more details, specifically as to an instance like this? What
type of data and information would we independently rely on,
not taking anyone's word for it, but we rely on in making our
assessment that this is in our best interests to protect the
American people from the scourge of fentanyl by making this
delisting decision that would help us better enforce our laws?
Ms. Kendler. Sure. We would look at all sorts of activities
associated with the impact of our export controls. We would
look at how chemicals are moving and fentanyl precursors are
moving around the globe. The critical point here is that the
United States has been facing a national security crisis
associated with fentanyl and we have deep human rights concerns
when it comes to China.
We have to address both of those concerns which are shared
priorities with the members of this committee. We have to
address all of that at the same time. Sometimes that involves
tough decisions. The----
Mr. Crow. Okay. I get that point. I understand that. That's
not the question. Mr. Axelrod, perhaps you could weigh in here
as well. What, in your understanding, would we rely on when we
make these independent decisions not based on a simple
statement, sir, certifications by other countries? But what
information would we rely on in a delisting decision?
Mr. Axelrod. Thank you, Congressman. Look, I think it's
fair to say that there are--whenever there's a delisting
decision, a variety of factors come into play. In some
circumstances, it can be more narrowly targeted to the
particular entity and when the particular entity has changed
its behavior in other circumstances such as this one.
The delisting decision can rely less on the specific entity
that was delisted and more on other factors that also need to
be taken into account as Assistant Secretary Kendler was saying
100,000 people are dying a year from fentanyl. I was a drug
prosecutor in Miami. I prosecuted the Cali Cartel at its
height.
The Cali Cartel was sending more cocaine into this country
than anywhere, anyone else ever in history. But cocaine wasn't
killing people the way fentanyl was. We have to do everything
in our power, use all our tools to help save American lives.
This was a decision that we believe will help do that, and
that's why it was done.
Mr. Crow. Okay. For either of you, how specifically--with
detail, how specifically does the IFS' ability to help the PRC
to track down precursor chemicals that are coming into the
United States who are in central and South America then being
produced into fentanyl? How does that delisting help track down
those precursors?
Mr. Axelrod. I'm not sure it's as direct as that,
Congressman. I think the issue here was that the listing of IFS
was a consistent impediment to getting agreement from the
Chinese to take specific actions to help with the fentanyl
crisis, to help with making sure that precursor chemicals
weren't being sent from China. Here the Chinese government
agreed to take concrete action as part of this.
We'll see. We'll see what happens. They've already taken
some. We'll continue to watch. But because the lab being co-
located----
Mr. Crow. Can you tell me what concrete actions?
Mr. Axelrod. Sure. Concretely, the PRC has taken law
enforcement action against certain Chinese synthetic drug and
chemical precursor suppliers which has resulted in some of them
stopping operations. In the first time in nearly 3 years,
they've restarted submitting incidents to the International
Ionics Data base which allows international law enforcement to
track shipments and intercept in real time. I believe they've
also committed to providing a notice to their domestic industry
advising on the enforcement of laws and regulations related to
fentanyl which the last time they did that in 2019 led to a
drastic reduction in seizures of fentanyl shipments from the--
--
Mr. Crow. We're going to monitor those things, right? If
they fail to follow through and comply with that, we can always
add IFS back to the list. Is that right?
Mr. Axelrod. That's correct. Removal from the entity list
is not a lifetime pass.
Mr. Crow. Okay. Thank you. Yield back.
Mr. Mast. Thank you, Mr. Crow. I now recognize my friend,
Mr. Burchett, for 5 minutes.
Mr. Burchett. Thank you, Mr. Chairman. Real quickly, Mr.
Axelrod, what data exists that the IFS has stopped its
behavior?
Mr. Axelrod. I don't believe there is such data,
Congressman.
Mr. Burchett. All right.
Mr. Axelrod. I believe what I testified was that this here,
this was a different type of calculus. It wasn't that the
activity had changed. It was that there was enough on the other
side of the balance involving helping to save American lives
from fentanyl.
Mr. Burchett. Okay. Let me switch gears here a little bit.
The Bureau of Industry and Security recently announced a 90-day
pause on firearms exports. Congressional staff was only given 1
hour notice. Why was not more time given to alert Congress?
Ms. Kendler. Congressman, our pause on firearms licensing
applies only to commercial entities outside of our close
partner countries, including Israel and Ukraine. That temporary
pause which we're halfway through at this point is based on
national security and foreign policy considerations. During
this pause, we are using the time to figure out how best we can
align our policy with our national security priorities.
Mr. Burchett. I appreciate that, ma'am. But that wasn't my
question. Why was not more time given to alert Congress about
this? I think staff was given about 1 hour before the policy
went into place.
Ms. Kendler. Congressman, if I may, this is not a policy.
This is a temporary pause to reflect on our policy to make sure
that we have it right given sometimes our tech controls mean
keeping advanced technologies away from China. Sometimes they
mean human rights concerns.
Mr. Burchett. Okay. You said you excluded Russia--I mean,
excuse me Israel and Ukraine. Why was that?
Ms. Kendler. We excluded our very close allies and partner
countries, including Israel and Ukraine.
Mr. Burchett. Why was that?
Ms. Kendler. For the most part, it's because they have
similar requirements in place for export controls on firearms
and ammunition similar to the United States through the
Wassenaar Arrangement which is a multilateral regime that
establishes the technical parameters for firearms controls.
Mr. Burchett. Okay. It just seems to me you're kind of
closing the barn door. They get attacked and then we allow
them. Then the others, if they get attacked, are they going to
be allowed to do this as well? Are we going to weigh--I mean,
it just seems to me that after they've already attacked, it's a
little late to do this is my point. You've excluded everybody
but Israel and Ukraine.
Ms. Kendler. We are continuing to license all applications.
We're continuing to handle license applications that involve
governments around the world.
Mr. Burchett. Yes, ma'am. I appreciate that. But also it
appears you all didn't have any conversations with
stakeholders. This isn't a Second Amendment issue, ma'am. This
is a Commerce issue. Firearms manufacturers told me they were
getting no warning. Why were just the firearms industry, why
were they singled out in this decision?
Ms. Kendler. We're looking at this from national security
and foreign policy angle. I would particularly point to our
authorizing statute, ECRA, which calls that we look at regional
stability issues. And particularly in the western hemisphere,
we have gun violence issues that lead to regional instability.
During the pause, we are very much consulting with
stakeholders. We are holding----
Mr. Burchett. But these people are in business, ma'am. If
you cut them off, government can just print more money but
these folks can't.
Ms. Kendler. NATO license applications are still being
processed. Frankly, that's about 75 percent by value of our
license applications----
Mr. Burchett. Okay.
Ms. Kendler [continuing]. that we are continuing to
process.
Mr. Burchett. Did anyone at the Department of Commerce have
conversations with the White House Office of Gun Violence
Prevention prior to this decision?
Ms. Kendler. We speak with the interagency about all
licensing issues. As I noted, there are four agencies that work
together by law intimately on export controls.
Mr. Burchett. Thank you.
Mr. Mast. Thank you, Mr. Burchett. Now I yield to Mr. Kim
for 5 minutes.
Mr. Kim. Thank you, Mr. Chair. Thank you to the two of you
for coming before us. Assistant Secretary Axelrod, I wanted to
start with you. I appreciated that you gave some texture in
terms of some examples of enforcement that we're taking,
especially vis-a-vis the PRC and Russia.
I was wondering if you might be able to go into--if you
have any additional, I want to just kind of add some texture to
be able to give people a sense of some of the range of what
you're doing. In particular, I'm interested in anything
regarding emerging technologies and components like that. But
if you don't mind, kind of give us some greater sense of some
of the things that you do.
Mr. Axelrod. Sure. Thanks, Congressman. As I mentioned, we
worked this year to establish the disruptive technology strike
force with the Department of Justice. I co-lead it with the
Assistant Attorney General for National Security.
We have 14 operational cells located around the country.
Unfortunately, not one in New Jersey, but we do have two close
by in the Southern and Eastern Districts of New York. And the
idea there is to work with FBI and HSI and Federal prosecutors
to bring cases focused on these disruptive or emerging
technologies.
So let me give you one example. We announced the first wave
of strike force cases back in May. In two of those cases,
software engineers at American companies allegedly stole
sensitive source code from their employers to send to China.
In one case, the source code was for autonomous vehicle
technology, and for the other it was for metrology software
which is used in smart automotive manufacturing. So those are
two examples. So those cases are pending. But I think through
our strike force efforts, you're going to see more cases in the
future involving emerging technologies.
Mr. Kim. Thank you. I appreciate that. One thing that you
mentioned that I'd like to get Assistant Secretary Kendler's
thoughts on, you talked about the importance of partnerships,
partnerships across government, with industries. But you also
made reference about partnerships internationally.
Assistant Secretary Kendler, I kind of wanted to get your
thoughts on this front. I think that there's a lot here that
you're trying to deal with across the board. And I think that
there could be a lot of importance when it comes to
understanding that kind of international engagement.
My understanding is that we don't necessarily have a
specific person who runs point on overseeing BIS' international
coordination efforts. I could be wrong. I wanted a little bit
more details on that front.
What is it that we are doing and whether or not something
like that, some type of position that could be a quarterback
there, thinking through how to harmonize policies with allies
and partners as well as thinking through how to just make sure
we're coordinating and implementing the policy, especially vis-
a-vis Russia and the PRC in a coordinated fashion? I wanted to
get your thoughts on that kind of idea.
Ms. Kendler. Thank you for the question, Congressman.
Whether we're aligning our controls through international
export control coalitions or through sort of more informal
plurilateral controls, we know that our controls are more
effective when we work with allies and partners when we evenly
affect all relevant industry across the world. And so we have
taken on new approaches to international partnerships.
Starting with Russia, we've built the Global Export Control
Coalition out of BIS which is 38 major global economies coming
together to deny Russia the same technologies. And building on
that agile approach, that more nimble approach, we are now
focused on more collaboration that's specific to the 21st
century landscape. So I think we have an opportunity to build
on that coalition. We have formal bilaterals with Europe
through the TTC, Japan, Korea, and India. We have many more
informal bilateral engagements.
Mr. Kim. I appreciate that.
Ms. Kendler. So we've started an office. We've started an
office of international policy using our Ukraine funding or
supplemental funding. And we are building that into the team
that you describe.
Mr. Kim. I appreciate that. And kind of thinking through
that in terms of how we're resourcing and how we're funding
this, Assistant Secretary Axelrod, everybody here is asking you
all to do more because it's so important. And I know the Biden
administration has put forward 222 million dollar request in
order to fund.
We're having a lot of debates here about what that funding
should look like. And right now the House Republican majority
put forward 14 percent cuts to the Department of Commerce. I
just wanted to get a sense of what kind of impact that would
have on BIS' work and what we would expect if the cuts went
into effect.
Mr. Axelrod. Yes, thank you, Congressman. Look, a cut to
our budget would directly impact our national security work.
It'll affect our ability to aggressively enforce the expanding
controls put in place on Russia and China.
The Ukraine supplemental that you all were kind enough to
pass gave us new resources that were added to our base in
Fiscal Year 1923, including 14 new special agents and 10 new
intelligence analysts and support personnel. If we were to go
back to our Fiscal Year 1922 levels, it would cut 10 percent of
our agents at a time when the need for more agents has never
been higher. So I would urge the committee not to cut us. If
anything, we can always do more with more.
Mr. Kim. Thank you. I yield back.
Mr. Mast. Thank you, Mr. Kim. Now I'm going to yield to Mr.
Moran for 5 minutes.
Mr. Moran. Thank you, Mr. Chairman. Secretary Axelrod, I
want to start with you and then I'll come back in just a second
to Mr. Kendler. The U.S. is the global leader in semiconductor
equipment manufacturing, but other countries including the
Netherlands, Japan, South Korea, and Germany are also critical
providers of equipment and equipment components.
Recently, reports have emerged that South Korean companies
are providing spare parts to American equipment that's
physically located in Chinese plants which would, of course, be
a violation of both U.S. intellectual property laws and U.S.
export control regulations. What is BIS' plan for making
existing U.S. export controls on semiconductor manufacturing
equipment more multilateral? And specifically, how do you
intend to address the problem of South Korean firms supplying
China with alternatives to U.S. semiconductor equipment,
technology, and supply chains?
Mr. Axelrod. Thank you, Congressman. If I may, maybe I'll
take the second part of the question because I think that one
is in my lane and maybe my colleague can take the first part of
your question if that's all right. Yes, we are always on the
lookout for violations of our rules.
And we aggressively investigate. I have agents across the
country in 30 different locations. We always want to make sure
that we are enforcing our laws so that we are not putting
American companies at a disadvantage and that we're maintaining
an even playing field.
I can't speak specifically to any particular law
enforcement investigation. But what I can tell you, that
wouldn't be proper under our longstanding principles. But what
I could tell you it's something that we take seriously.
Mr. Moran. It's generally recognized, and you understand
it's happening, correct? You would agree that it's happening?
Mr. Axelrod. Again, I'm at a little bit of a loss of what I
can say since I run the law enforcement function. But what I
can tell you is when there are reports of violations, we take
them seriously and investigate.
Mr. Moran. Then let's go over to Ms. Kendler who's on the
administrative side. Do you agree that's happening, what I
described for you?
Ms. Kendler. Congressman, effective export controls
absolutely require international collaboration, especially in
an area like semiconductors where there is technology.
Mr. Moran. What are you doing to stop these other countries
from sending component parts to South Korea that are then
getting used in American equipment existing in China?
Ms. Kendler. It is exactly that international
collaboration, speaking with other governments, sharing our
risk assessments, helping them understand how technology is
misused and maybe used against our own interests.
Mr. Moran. Is anything actually being done to stop it
besides just providing information that's going on? Are you
guys working to stop it?
Ms. Kendler. Congressman, it is exactly that collaboration
that does work to stop the flow of goods. In the Russia
context, building the Global Export Control Coalition is
exactly what has stopped us from sending a list of 45
technologies that we've shared around the world with Russia.
Mr. Moran. I got a bunch of stuff I want to ask you. So let
me ask you about this. Back in May, I asked you about the 300
million dollar penalty for Seagate.
I talked to you guys about that. I think I talked to you,
Mr. Axelrod, about that. And then we sent some followup
questions.
In response to those questions, the answer was that it
appears worrisome to me that fines currently imposed on
businesses for violations of export control laws may not serve
as a sufficient deterrent. I agree with that. So if it is not
sufficient, then what else can we do as a punitive matter to
stop those parties that are violating our export control?
Mr. Axelrod. Sure. I'm proud of the result we achieved in
Seagate, and I thought that was an effective penalty. We follow
the facts and the law. When we have sufficient evidence, we
bring criminal charges.
When we don't and we have enough to bring administrative
charges, we bring administrative charges. I think both have
deterrent value. But I agree, Congressman. Nothing deters like
having people in jail in handcuffs. And when we are able to
make those cases, we bring them with the Department of Justice.
Mr. Moran. All right. Finally, last week, I introduced a
bill called the No Technology for Terror Act which makes
permanent the foreign direct product rule to Iran, a measure
that was published as a rule in February of this year. This in
my estimation is necessary to restrict technology that is used
to fuel Iran's manufacturing and trade of lethal weapon systems
to Russia. Between China, Russia, Iran, and North Korea, their
partnership, of course, we know is growing and becoming more
intertwined.
I applaud the BIS' efforts to enforce export control laws
to China and other countries whose strategic objectives are
contrary to the U.S. national security interests. As our
adversaries work more closely, how are you allocating
departmental resources between the other regions that are
becoming more closely aligned to China? This will be my last
question to either one.
Ms. Kendler. Congressman, on the international alliance
front, we are working very closely with that group of 38 major
world economies that I mentioned earlier to bring our controls
on Russia into alignment, whether that's through third country
shipments or directly to Russia.
Mr. Moran. All right. Thank you. I'm out of time. I yield
back.
Mr. Mast. Thank you, Mr. Moran. I yield to myself to ask a
few questions. Ms. Kendler, do you believe that we should be
working to keep American technology out of the hands of the
Chinese Communist Party?
Ms. Kendler. Congressman, I very much agree that advanced
technology should be kept from being used in Chinese military
modernization, absolutely.
Mr. Mast. Quantify that term, advanced technology. You said
it more specifically than just, yes, I want everything out of
their hands. So quantify that.
Ms. Kendler. Sure. There are technologies that are very
useful for military modernization that would allow the Chinese
military to outpace that of the United States. We do not permit
that technology to go to China. There are other technologies
that are low level that may not--that the United States does
not have an advantage in that are available all around the
world, including in China itself. And those technologies, there
may be a values based reason, a human rights reason to control
technology like that. But for the most part, such controls
would not be effective where we don't impose them.
Mr. Mast. You agree that if--as I gave an analogy in my
opening statement--if one part of China or the Communist Party
has the technology or is able to steal or somehow garner the
information or the technology, then the whole of the Chinese
government has the technology? Would you agree with that?
Ms. Kendler. I do believe that there are instances in which
end users will put compliance measures in place that are
reliable, particularly when it comes to multinationals
operating in China.
Mr. Mast. To be more specific, you're saying right now you
believe--you don't agree with what I just said. You believe
that China has compliance measures in place that would prevent
one part of the Chinese Communist Party from getting something
that the other part of the Chinese Communist Party has?
Ms. Kendler. If you're specifically speaking about items
that may be in the possession of the Chinese government, that's
a bit different from the overall national security concern. The
national security concern is different.
Mr. Mast. I think if it's part of the Chinese Communist
Party, the government, a military entity, a private business
that's supported by the Chinese Communist Party, whether in the
Chinese home or abroad, I would say that the facts support that
if one entity at all has a piece of that information, then the
whole does as well. But I want to move on a little bit from
that and move back to the conversation my friend, Mr. Mills,
was having with you about IFS on the entity list. And can you
just tell for the benefit of everybody, why was IFS put on the
entity list to restrict them from getting anything?
Ms. Kendler. Congressman, this is----
Mr. Mast. Explicitly, clearly, why were they put on that
list?
Ms. Kendler. Congressman, we identified human rights
concerns associated with IFS. And that led to their
designation. This is before my time. But that is my
understanding based on the public record.
Mr. Mast. Could either of you give me something more
specific?
Ms. Kendler. May we get back to you with further
information on that?
Mr. Mast. You may. I see some folks behind you raising
their hand. I would actually give them about 20 seconds to say
something if they want.
Ms. Iltebir. Thank you for giving me the opportunity. I'm
Uyghur-American. It was put on the sanction list because it
used DNA of Uyghurs and Tibetans. And it is linked to Uyghur
genocide crimes against humanity. Thank you.
Mr. Mast. Thank you. Thank you for sharing. As we look at
that and those accusations, what can you tell us you're
concerned about reaching the IFS? What technology did you not
want to make it to the IFS?
Ms. Kendler. Congressman, we are concerned about human
rights and we are concerned about the fentanyl crisis. And when
we are talking about the removal of IFS from the entity list,
all of these factors came into play in a tough decision.
Mr. Mast. I get it. But what did you not want to get to the
IFS? You put them on the entity list. You didn't want them to
have something.
What did you not want them to have? And what will they now
have access to as a result of being removed from that list? You
said there's a balance in national security, balancing
fentanyl, balancing what they've done with Uyghurs or with
anything else. Tell us the other side of that balance.
Ms. Kendler. When a company is added to the entity list, it
means that we have scrutiny. We have an ability to review
transactions involving that entity that we did not previously
have. We can review all items going to that entity and
determine based on the technical nature who it's going to, how
it will be used, and the risk of diversion to other activities
that may be unauthorized. We assess all of those factors
together with DOD, Energy, and State.
Mr. Mast. What didn't you want them to have?
Ms. Kendler. Well, that is a decision for the interagency
that would come in as each license application comes in. We
care very much about human rights, and I know that's a shared
concern. And so we would look at license applications with that
angle.
Mr. Mast. We're going to do another round. So I'm going to
yield to my friend, Mr. Crow, here. And then I'll go back down
the line here. But Mr. Crow, you're recognized----
Mr. Crow. Thank you.
Mr. Mast [continuing]. for 5 minutes, if you wish.
Mr. Crow. I wanted to talk about the issue of resourcing
because the economy has grown significantly in the last decade.
Your resourcing has been flat as I mentioned in my opening. And
at the same time as the economy has grown, your budget and
resources have remained flat.
The national security environment has changed radically.
We've had some discussions in the past about how the
battlefield has changed drastically. And we see that in
Ukraine, for example, where more and more technologies and
things that we're seeing on the battlefield are commercial off
the shelf, drones, night vision, scopes, all manner of radios,
all manner of technology that is no longer just the domain of
defense companies or governments but stuff you can go on Amazon
and buy.
So given that, given both the growth in the economy and the
radical shift in national security and what conflict looks like
today, can you tell me what is it you would do if you had more
resources? How would you use those resources and what would it
look like? Both of you, just a minute and a half each.
Ms. Kendler. Congressman, thank you very much. Our mission
is harder and more complex given the evolving technology space,
given the evolving national security geopolitical landscape. We
punch above our weight in BIS.
I think your assessment of our budget is accurate. And
we've, at the same time, issued dozens more rulemakings. We've
put together this coalition on Russia and built and maintained
it. We have a vigorous expansion----
Mr. Crow. What would you do with more resources?
Ms. Kendler. I think I'd start with the Office of
International Policy and building up technical analysis of
emerging technologies. We'd put more resources into that. We'd
put more resources into licensing so that we can provide a
faster response in reviewing license applications while
committing the same efforts to protecting national security and
foreign policy interests. We would beef up the resources we
relied upon for open source information in foreign languages.
Mr. Crow. Why? What impact would that have? What would that
allow you to do?
Ms. Kendler. It would enable us to better protect national
security, period. But more specifically, it would enable us to
look at what other countries' adversaries are publishing in
their own materials about their goals, where they're spending
their sovereign wealth, how they are investing in technologies
in a way that may not be clear if you just follow U.S. sources
or English language sources. It would also enable us to develop
controls more carefully in collaboration with international
partners and allies to spend the resources in foreign capitals.
Representative Moran alluded to Korea earlier. Bringing other
countries on board with our controls so that we truly have
effective controls where there is foreign availability of
technology that we're concerned about.
Mr. Crow. Thank you. Mr. Axelrod?
Mr. Axelrod. For us, three things. More agents, I mentioned
the disruptive technology strike force. We'd be able to put
more agents against doing investigations, particularly
involving China and Russia. Second, more analysts, we don't
currently have enough analysts to have them embedded in our
field offices around the country.
If we had more resources, we would make sure that each of
our field offices had an analyst working there alongside the
agents. And third, we'd invest in technology tools. One way to
magnify the efficiency and effectiveness of the people we do
have is through technology. If we had more resources, we could
buy some of those technology tools to allow us to do our work
smarter.
Mr. Crow. I appreciate that. If you had those three--if you
did those three things, what would be the real life impact?
Mr. Axelrod. Sure. More investigations, more charges, more
penalties, more compliance checks, more additions to the entity
list, all things said I think would enhance our national
security.
Mr. Crow. And why is that important? Why are more
investigations, more penalties, why is that important?
Mr. Axelrod. Well, so two reasons. One, it holds people
accountable who've broken our laws and who've hurt our national
security. But I think even as--or more importantly, it has a
huge ripple effect. And it has a huge deterrence effect.
To encourage companies to invest in compliance, you have to
also every once in a while hold companies accountable when they
violate the law. That's what encourages them to spend the money
up front. And we would much rather have companies comply on the
front end than enforce on the back end. Because when we're
enforcing on the back end, it means the national security harm
has already happened.
Mr. Crow. Well, certainly we've seen an instance of Russia
that it's one thing to impose the sanctions. But sanctions are
living beings almost. You always have to be monitoring, looking
at what loopholes are being exploited.
Our adversaries are constantly evolving. And to your point,
we have to constantly be evolving and enforcing and having eyes
on that as well. Is that fair to say?
Mr. Axelrod. Exactly.
Mr. Crow. Okay. Thank you. I yield back.
Mr. Mast. Thank you, Mr. Crow. I do find the answers
interesting of what would be done with more resources to add
more investigations and more to the entity list when we're
literally having the conversation about what are the primary
focuses of the entity list being taken off the entity list. So
it's interesting to juxtapose those two things. Representative
Mills?
Mr. Mills. Thank you, Mr. Chairman. And I'd also add that
sanctions only work when they're actually properly enforced.
And as we can see, this administration has done nothing to
continue to enforce the sanction against Iran which is why they
have more petroleum export at this time than they ever had
throughout their history which is actually helping to funnel in
to the funding of other terrorist organizations such as Hamas,
Hezbollah, Kata'ib Hezbollah, Houthis.
So sanctions only work when they're actually being
enforced. I want to go back to something that you had stated a
few moments ago, Ms. Kendler. And I'm not trying to pick on you
on this one, but I'm just curious.
You say, and I'm quoting you, we are concerned with human
rights and national security, yet the very country who poses
the greatest threat to us from a national security perspective,
the very country which commits tremendous amounts of human
rights and I would even wager to say genocide is actually the
Chinese government themselves. And yet we're actually scared
under the Biden administration to call them adversaries. We
still try and refer to them as competitors because we don't
want to upset the great ruler Xi.
That's the realities here. You want to talk about genocide
and human rights violations? Chinese government. And you try to
distinguish between the two from the PRC to the CCP. But the
same guy who heads both is the same guy.
I think it's hard to ignore that. Everyone is so nervous
about the ideas of decoupling away from them because they
realize that America has not done themselves any favors by
continuing to ingratiate themselves with adversarial reliance
on our supply chain mechanism. And meanwhile, we'll sit here
and say, we care about national security. We care about human
rights, but then go and spend and build the economy of a
dictator in a nation who actually violates both.
I'm sorry. I got a big issue with that. So I want to go
back to IFS because, again, I don't feel that we're actually
hitting on this right.
Because IFS and the National Narcotics Laboratory are co-
located, the Chinese government has repeatedly and aggressively
claimed that both entities were on the entity list despite
multiple clarifications, by the way, from the U.S. Government
that this wasn't true. To the best of your understanding, did
the Chinese government's condition their reengagement with the
U.S. on counter narcotics efforts on IFS being removed from the
entity list?
Ms. Kendler. Congressman, if I may, no Commerce department
in history has been more aggressive toward China and export
controls than this.
Mr. Mills. I'd agree under the Trump administration but not
now because I've watched actually the opposite. China, Russia,
Iran, and North Korea, and I'm fine that you got back onto this
topic because I'm all for it. They've been geopolitically
aligned for decades and we've ignored it.
That's why Russia and China both modify their constitution
so they can stay in power forever so they can actually go after
the U.S. dollars to global currency. The whole idea was to
focus on western hemisphere attacks on economics and resource
and supply chain base. But yet when we support their allies, we
in turn indirectly support them as well which is why I brought
up Iran earlier which is why I bring up the marriage of
convenience of Russia with Chavez in Venezuela or Petro in
Colombia.
Or the economic coercion that goes on in Panama and
Honduras that actually allows them to control the taxation of
tariffs in the Panama Canal. Or the Belt and Road Initiative
expansion that takes over Eurasian expansion, Africa, Oceania
so they control western hemisphere supply chain through the Red
Sea, Mediterranean, the Black Sea, the Horn of Africa, the
Persian Gulf. Let's go on and on with this.
No, the Biden administration has not been more aggressive
against China. They've actually been weaker. And I think that
when you look at exportation which is simple data numbers, it
speaks to that and its inevitability, that we are not becoming
a nation which is decoupling from adversaries.
We're actually becoming more reliant upon, especially as we
attack natural gas and our own ability to provide energy,
which, by the way, I would argue is truly the global currency
is energy output. So I disagree with your assertion there. And
I think just look at the numbers. Look at the figures on this.
I think that everyone can actually go with this. But my
question goes back to it. Did the Chinese government condition
their reengagement of U.S. counter narcotic efforts on IFS
being removed from the entity list?
Ms. Kendler. Congressman, as I believe my colleague noted,
we were of the clear understanding that this was an impediment
to their cooperation on the fentanyl----
[Simultaneous speaking.]
Mr. Mills. So did the Chinese then say, if you don't remove
IFS or if you--I guess I'd say if IFS is removed that that
would have an implication on this reengagement?
Ms. Kendler. Congressman, all I can tell you is that it was
clear to us that removal of this entity from the entity list
would lead to cooperation on fentanyl precursors. And that is a
national security----
Mr. Mills. So we allow China to now drive----
Ms. Kendler [continuing]. priority of the United States.
Mr. Mills [continuing]. what goes on and off our entity
list based on what type of engagement they will or will not
have with us?
Ms. Kendler. The decision of who to remove from the entity
list is made by the Departments of Defense, Commerce, Energy,
and State unanimously.
Mr. Mills. That's funny to me. I mean, this would be the
equivalent and I just saw that. So if, for example, China
automatically says that we're going to support you and climate
change, does that mean that we just drop Huawei as well?
I mean, this is the dangerous precedence that we set when
we start engaging in these ways where foreign entities say, we
won't engage with you unless you do X. And we go ahead and
acquiesce to this each time. And my colleague can talk about
the fact that I utilize the term, acquiesce.
But when we do that, I'm going to call it for what it is.
So I'm sorry, but I didn't realize that we were actually
serving the People's Republic of China as opposed to the United
States and the people who are citizens here and the best
interests are here. But if you want to talk about human rights
and national security, then start looking at the decoupling
away from China in its entirety. With that, I yield back.
Mr. Mast. Mr. Moran, 5 minutes.
Mr. Moran. Thank you, Mr. Chairman. I want to pick up where
Representative Mills just left off because there's been a lot
of questions about IFS and China. And I want to be sure that I
understand what the answers are because earlier, Ms. Kendler,
when you started talking about IFS, those export controls were
no longer being imposed, you said that China had undertaken,
quote, major tangible action to address the fentanyl
precursors.
That's why now we're playing nice with them effectively.
But then later I thought Mr. Axelrod said that they didn't
actually change their behavior. So just want to figure out did
I miss that? Did I misunderstand that? Was there major tangible
action by China to address the fentanyl precursors?
Mr. Axelrod. Yes, Congressman. What I said or meant to say
was that IFS wasn't removed because of a change in IFS'
behavior. There was a change in behavior by the overall Chinese
government.
Mr. Moran. Okay. All right. So by the Chinese government.
When did this behavior change? And do we have any measurable
results from it to see whether or not there's actually been a
decrease of the fentanyl precursors flowing through Mexico to
the U.S.?
Mr. Axelrod. Yes, all of this happened within--I think
within the past month, Congressman. I think it's too early for
those types of details. But that's something we can try to look
into as time goes on.
Mr. Moran. You actually walked right into the point I'm
trying to make. You said it was too early basically to see
whether or not there's any results from this changed behavior
effectively.
Mr. Axelrod. Well, I think it's too early to see to track
overall sort of fentanyl flows into the United States. That's
not my area of expertise. My understanding is there have been
concrete actions taken by the Chinese government so far and
that should lead to a reduction. But in terms of actual
concrete numbers, I don't know. But my understanding is that
the Chinese government has already taken action that has led to
some companies stopping operations.
Mr. Moran. Okay. But we don't have any real data about
whether or not what the Chinese have promised to do or not has
had any positive effect on the fentanyl trade here in the
United States yet. We've removed IFS from the entity list. Is
that correct? We're basically taking China's word for it to say
they promised they're going to be good stewards and they're
going to be good partners with us. And as a result, we're going
to go ahead and remove IFS from the entity list.
Mr. Axelrod. Congressman, I'm not sure I--I don't think I'd
put it that way. What I would say is there were a series of
actions taken at the same time. China did a bunch of things.
The United States did a thing.
The United States removed IFS from the entity list because,
as I've said before, it was an impediment to getting China's
cooperation on fentanyl which is killing over 100,000 Americans
every year in all of your districts, right? Across the country,
we have to do what we can. That doesn't mean that we're going
to trust China is going to do what they say.
Mr. Moran. No, but that's exactly what you did. That's
exactly what the government did was they trusted China on their
word. Why don't we see the results of that first before we
remove IFS from the entity list?
I understand that you've got to make a horse trade at some
point. And I really understand being a representative from
Texas the fentanyl trade and how it's affected and impacted
communities. We are in a border State, so I see it day in and
day out.
I think what I have a big problem with is saying to China,
hey, you know what? We're going to go ahead and give you what
you want first before we see the results on the back end. I
think we ought to ask for results on the front end.
Then if we needed to make that trade later, precondition it
on the decline of those fentanyl precursors. We haven't seen
that yet, yet we have taken IFS off the list. And ostensibly,
I'm willing to bet IFS will not go back on that list even if
the fentanyl precursors do not go down.
Mr. Axelrod. Well, Congressman, first of all, as I said
before, there's no lifetime pass depending on circumstances.
Generally speaking, a removal from the entity list doesn't
guarantee you'll never go back on. But what I would say is
China has taken concrete actions.
Of course we'll continue to monitor to see how effective
those actions are. But so far, they've done the things they
said they would do. And that doesn't mean that that's going to
continue forever. But so far, it's not like it was just buying
a pig in a poke.
Mr. Moran. This is going to be a point for us to come back
to at a later date. Just like I revisited a topic I raised in
May, I'm going to revisit this again because time will only
tell whether or not those precursors go down. And I think we're
going to look like we have egg on our face if we have given
China what they wanted and we have not gotten the results that
Americans deserve in return.
Mr. Axelrod. I agree that time will tell, Congressman. What
I'm saying is I think we had to try. Given the scope of the
fentanyl crisis in America, we had to try to see if this could
work. And so far, there have been concrete actions by the
Chinese side.
Mr. Moran. My colleague, Mr. Mills, has it right. If we
just close the border, we'll do a lot more for the fentanyl
problem than if we make deals with China. With that, I yield
back.
Mr. Mast. Thank you. I recognize myself for five more
minutes. Looking at fentanyl as an issue and those individuals
that deal with it peripherally as a part of the subject related
to export controls, asking for your own assessments, how much
do you assess having looked at this that China could have a
small effect on the amount of fentanyl coming into America, a
fair effect on it, a substantially large effect on the amount
of fentanyl coming into America?
Mr. Axelrod. I mean--Congressman----
Mr. Mast. What's the bang for the buck?
Mr. Axelrod. Yes, we're a little bit beyond on subject
matter expertise since we're mostly focused on things going out
of the country, not things coming into the country. What I can
tell you is that, as I said before, the steps that we're taking
here to remove one party, an important party because of human
rights abuses involving the Uyghurs which is something we take
very seriously. There are a number of other entities that we've
placed on the entity list for that same list that remain on the
entity list. But the removal of one entity which has removed
this impediment to allow this cooperation on fentanyl
precursors again is significant. Now----
[Simultaneous speaking.]
Mr. Mast. The whole argument is that by removing them from
the entity list, we can make a substantial dent because China
will be willing to stymie the flow of fentanyl into America.
And so I'm asking what's the bang for the buck? Does the
Chinese government in your agency's assessment have an iron
fist in the control?
And right now, they're, like, yes, send that stuff into
America. We don't care. We want to see it happen. Or they're,
like, man, I really wish we could do something about that but
we just can't figure out a way to do it. Which one are they?
Mr. Axelrod. Congressman, what I would tell you is that the
Chinese government has taken concrete actions so far. But we
will continue to monitor to see what the impact is.
Mr. Mast. So they could've done it with or without IFS
being removed from the entity list?
Mr. Axelrod. Could have or would have are two separate
things.
Mr. Mast. No doubt about it. We can cover that too. They
certainly were not willing, right?
Mr. Axelrod. Certainly were not willing.
Mr. Mast. Just a good point to make about the entity that
it is that we're dealing with. I want to go back to something
that we were discussing on this front. Ma'am, you couldn't
necessarily say what it is that we wanted to prevent them from
getting.
I didn't get an answer on that. Let me try asking this in a
slightly different way. Do you know what it is that they want
by being taken off the entity list? What's the other side of
that coin?
What do you assess that they want? Before I would make any
deal, I would want to know what my counterpart wants. Why do
they want that?
Why do they want to be off that entity list? What are they
trying to get their hands on? So what's the other side of that
coin?
Ms. Kendler. Congressman, we certainly have some
understanding of that. I don't know that this is exactly the
forum to speak about that in. Our approach here is to look at
human rights and protection of human rights in China through a
wide variety of tools. And this specific entity listing----
Mr. Mast. So allow me to pause for one moment there.
Ms. Kendler [continuing]. is just one of those pieces.
Mr. Mast. Can we just turn off the camera? I was wondering
if we could turn off the camera and just ask everybody to leave
so that you would answer us. But I'm told that we can't just
simply do that. Please continue.
Ms. Kendler. Congressman, when it comes to human rights and
our export controls, we have technologies that we control for
what we call crime control reasons which is another word of
saying human rights reasons. Those technologies cannot go to
China. We have technologies that are used such as advanced
intelligence--our rule that we put out last fall and updated
this fall, that advance technology, artificial intelligence
technology, that's what entities use to process the DNA
information that they harvest. And we have controlled that.
Mr. Mast. Let me pause my remaining time. And thank you for
trying to answer the question. Just to kind of sum up what I'm
getting out this right now, we can't say what it is exactly
that we were preventing them from getting.
We know they wanted to be off the entity list, that
specific agency. And there's something that you could maybe
tell me in another setting about what it is that they're trying
to get their hands on. But the reality is they do now have a
greater potential to get there, if not an unlimited potential
to get their hands on whatever it is that they wanted that was
being prevented by being on the entity list that was important
enough for them to say, we will do all of this on fentanyl that
we were not doing before, even though it was killing millions
of people.
That, to them, made it a good deal. So there is something
in there. And I would hope that we find another time to get
those answers behind closed doors because I am damn curious to
know what that something is. In that, I've exceeded my time.
I'm going to now go to Representative Issa for 5 minutes.
Mr. Issa. Thank you, Mr. Chairman. I'm going to followup
with a rhetorical question, not about something that's so
valuable. But I want to ask it in a different way.
Recently, we were embarrassed by going to China and having
them demonstrate their 7 micron capability and their 5G
functional units just to in your face. Either they don't need
us or they've gotten what they need from us. If we continue at
this pace, is there any doubt that they will, in fact, be at
least at parity or dominant in 5G and other emerging
technologies?
Ms. Kendler. Congressman, our controls on China, export
controls are intended to massively slow down technology
acquisition. We are not----
Mr. Issa. Well, they're not slowed. They demonstrated that
they're going to be parallel with us in 5G at this point.
Ms. Kendler. I would argue that the 7 nanometer chip in the
Huawei phone which, of course, we share your concerns about
this technological development. First of all, purported 7
nanometer, the performance may not match----
[Simultaneous speaking.]
Mr. Issa. The yield may not match.
Ms. Kendler. The scale--no, neither performance nor yield
may match the marketing of the device. Moreover, the
semiconductor chip that is inside that phone is of poorer
performance than what they had years ago. So our export
controls are meaningful in slowing China's advanced technology
acquisition. And as we stay on top and proactive about how we
institute our controls to match our national security and
foreign policy interests, we will keep them behind and we will
not allow them to outpace U.S. performance.
Mr. Issa. What authorities don't you have that you would
like to have? Congress can give you greater authority. What is
it you don't have?
Ms. Kendler. One, I really appreciate that question. We do
have broad authority through ECRA. And additional authorities
were provided in the NDAA last year that are very useful to us.
One area where we're looking in this regard is cloud
computing. And this particularly pertains to access to cloud
computing that is no longer indigenous or domestically
available in China because of our----
[Simultaneous speaking.]
Mr. Issa. Why worry about making AI when you can get the
fruit of AI for your development online.
Ms. Kendler. Precisely, sir. So it is possible that we may
need additional authority in that space to protect our national
security. And we will absolutely look forward to working with
you----
[Simultaneous speaking.]
Mr. Issa. So currently, there is no firewall of AI. And
they are free to rent time essentially to their benefit?
Ms. Kendler. It is a concern. Certainly, companies are
looking at it not just from a business perspective but also
from a national security perspective and we're grateful for
that. But it may be a space where we need additional authority.
Mr. Issa. Let me ask you one more question that is not
classic BIS. But it does fall under the broader Commerce
umbrella. The undersecretary at the PTO, in fact, controls
whether or not patents are granted and can be enforced in this
country, at least in part, in harmony with our legislation and
the courts.
Currently, Chinese companies, if I'm correct, three of the
top ten recipients in volume are Chinese companies, including
Huawei who is now in the top ten. So Huawei, who can't sell
here, in fact has more IP protection and thus more licensing of
U.S. companies, often reciprocal licensing or often even global
worldwide licensing that give them access to technology. If you
had tools that made it clear that in return for their wanton
theft of intellectual property, we would, in fact, retaliate by
limiting their patentability and their revenue from here.
Would that be valuable to you? And I'm saying it broadly
because it's not just your lane but the lane of several parts
of the government currently not in law. And I say it because
every time we have a discussion like this, we talk about their
theft of intellectual property, sometimes as national security,
sometimes just the fact that they steal everything.
Our patents, if you waste your time and money as I did to
patent in China, are useless. To trademark in China is useless.
So would that authority work together to make sure it passes
international muster? Would that authority help you in stemming
this advance their making?
Ms. Kendler. Congressman, I absolutely share your concerns
about Huawei and theft of intellectual property. As a former
prosecutor of Huawei, that's certainly part of our allegations
against the company in the Eastern District of New York. The
questions about patents unfortunately as they don't exactly
pertain to export controls, that is something I can take back
for our PTO administrator.
Mr. Issa. The ultimate export to China seems to be money.
So what we're talking about is the revenue that they receive
from licensing here and even injunctive relief if you don't
take a license. Well, in fact, the fruit of that is often at
least part the theft of our intellectually property as a
litigator you are well aware of.
So if you take that back, I'd love to hear more about it.
We are all of us trying to figure out in an AI world how you
apply the historic export controls because it's not going to be
chips. It's going to be learning capability in the near future.
And as you said, right now, you don't have that authority
in the four square. Thank you and thanks for your indulgence.
And I yield back.
Mr. Mast. Thank you, Mr. Issa. Before I recognize Mr. Crow
for a closing statement, I just have one last administrative
request. Ms. Kendler, would you commit to providing the
licensing data for IFS since being put on the entity list and a
briefing about IFS in a classified setting?
Ms. Kendler. Congressman, we certainly want to cooperate
with this committee. And we'll fulfill requests that we
received that are consistent with ECRA, absolutely.
Mr. Mast. So yes?
Ms. Kendler. Consistent with our legal obligations, yes.
Mr. Mast. Does that mean you are, or--I'm just a simple
soldier.
Ms. Kendler. ECRA establishes certain rules for how
requests are transmitted. And I want to make sure that we are
complying with them. But in the spirit of that, absolutely,
sir.
Mr. Mast. Thank you. There's an old saying, don't bullshit
a bullshitter. So in that, Mr. Crow, I recognize you for 5
minutes.
Mr. Crow. Are you calling yourself a bullshitter? Is that
what you're saying. That's what I took from that.
Mr. Mast. I would call all 435 people on the----
Mr. Crow. I'm still in shock.
Mr. Mast [continuing]. our side of the building.
Mr. Crow. I need to come up with something else to say. I
don't know what to say.
Mr. Mast. And the 100 people on the other side of the
Capitol building, I would absolutely call every single one of
them bullshitters.
Mr. Crow. That was a rhetorical question. I've known you
long enough to know the answer to that.
Mr. Mast. But you should know if you ask me a question, I'm
going to give an answer to it.
Mr. Crow. That's true.
Mr. Mast. Don't threaten me with a good time.
Mr. Crow. That is true. Well, thank you, Chairman Mast. I
appreciate you calling this important hearing. And thanks to
both of the witnesses for being here today and having this
really important discussion.
A few takeaways from me, one is the issue of resourcing.
But the landscape has dramatically shifted. The economy has
increased significantly.
Yet a practical flatline of your budgets do not put us in a
good position to gain the insight that we need to gain for both
our economy and our national security as to how technologies
are shaping the battlefield, how technologies are impacting our
economic security, international security, and enforcement,
that we just need more agents. And it's one thing having more
eyes and insight. It's another thing is doing something about
that.
As you both outlined today, the enforcement is the critical
long pole in the tent as I sometimes say to making sure this
actually works because you can sanction people all day long.
You can add people to the entity list. But unless there's
actual viable enforcement and we have the resources to do that,
people won't take it seriously.
Our own companies won't take it seriously, and certainly
our adversaries won't either. So it's our responsibility in
Congress to have a very serious discussion about how we provide
you with the resources to actually conduct the job and perform
the mission that you have been asked to do by Congress and by
the administration. And the second is the issue of tradeoffs,
right, that we live in a very complicated world.
Sometimes the sound bite culture that politicians live in
doesn't capture the nuance of these tradeoffs. Very hard
decisions have to be made. When we're dealing with national
security and export of critical technologies that can be used
against U.S. forces, that could be used against our partners,
our allies, we certainly take that very seriously.
At the same time when you have a situation where fentanyl
is killing, as you both acknowledged, over 100,000 Americans
every year in all of our communities, figuring out how we
address both of those sometimes means that we have to make
decisions about that enforcement and those relationships. I
will leave it to you all, though, to come back to us. And we're
going to pull a thread on this.
We're not going to stop on this, the actual enforcement and
compliance with IFS delisting, right? I have a lot of trust in
this administration to balance that tradeoff the right way. But
obviously, we have independent obligations as Members of
Congress, not just the trust but to followup and conduct
oversight.
I really do want to know whether or not China is complying
with the terms of the agreement, whether we are getting the
bang for the buck on the delisting, that it actually is
resulting in material changes in the precursor flow to the
United States that is killing so many of our constituents. So
we will certainly be following up with that. So thank you both
for coming and having this discussion with us today, and I
yield back.
Mr. Mast. Thank you, Mr. Crow. I thank the witnesses for
their testimony. Committee stands adjourned.
[Whereupon, at 4:11 p.m., the committee was adjourned.]
APPENDIX
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