▶ 0:04:19We'll uh we'll give our other colleagues here a couple of minutes. So, appreciate your patience. Thank you.
▶ 0:09:18My apologies including to the TV crew out there. We're uh give us a moment here yet and hopefully Miss Kumlager Devil will be here shortly.
▶ 0:11:09on South Central Asia will come to order. The purpose of the hearing is to discuss export controls on semiconductor manufacturing equipment and their I'm going to uh give myself an opening statement and then turn to the ranking Cutting edge AI chips like Nvidia Blackwell are driving the AI revolution that may define the 21st century.
▶ 0:11:35Less advanced chips known as foundational chips to power everything from phones and cars to the military drones shaping the battlefields of Ukraine, the Middle East, and potentially the Taiwan Strait. Whichever country dominates semiconductor production will have the power to lead the world. Building these chips requires highly specialized tools. These chipmaking tools, often worth billions of dollars, can etch features in chips that are smaller than the width of a strand of human DNA. Not hair, DNA.
▶ 0:12:05American, Dutch, and Japanese companies control the vast majority of the market share. If the free world blocked China's access to these machines, America and its allies would control the defining technology of our time. President Trump and his un and his administration understand this based on their public statements.
▶ 0:12:24During his first administration, President Trump blacklisted key Chinese semiconductor companies Huawei and Smick and con convince the Netherlands to block China's access to the most advanced chipmaking tool in the world uh known as the EUV lithography machines. EUV uh lithography machines are used to make advanced chips like the NVIDIA Blackwells which are power cutting edge AI tools.
▶ 0:12:48Thankfully, President Trump had the foresight to make this move three years before Chat GTP unleashed the AI revolution. The Biden administration later expanded on President Trump's export controls to cover other essential tools slowing Chinese chip production capabilities. Unfortunately, many of the Biden administration's export controls contain critical loopholes, culminating in the administration's ineffective leadership abroad on this issue.
▶ 0:13:15Troubling, the Biden administration gave a free pass to key allies who continue to provide Chinese Communist Party with chipmaking equipment to this day. Moreover, the United States and its allies continue to provide China with the essential components it needs to build its own tools. America must close these loopholes to stop the Chinese Communist Party from leveraging our technology for its military modernization efforts and pursuit of technological dominance. I believe President Trump is committed to closing these loopholes.
▶ 0:13:45On the first day of his second term, President Trump directed state and commerce to quote identify and eliminate loopholes in existing export controls close quote. The White House's AI action plan partially written by Mr. ball here uh goes further by recommending export controls on advanced subcomponents used to make chipm tools in addition to stopping allies from supplying China's defense industrial base and backfilling US technology. The time to act is now.
▶ 0:14:15The Chinese Communist Party is exploiting the loopholes in US export controls to stockpile chipmools and critical components while it still can. If left unchecked, the CCP would use its dominance in chip production to modernize its military and build the advanced chips needed to win the AI arms race. Acting quickly and decisively will ensure that China cannot lead the world to a dystopian future where the surveillance state controls virtually all aspects of life.
▶ 0:14:46If China becomes the dominant global producer of both chipmaking equipment and semiconductors, it will grant the CCP an even more dangerous strangle hold over the United States than it currently has with rare earth magnets today. Congress and the executive branch must quickly uh act to close the loopholes, thereby ensuring the free world wins the defining technologies of our time or risk seeding it to the future the future to China.
▶ 0:15:13That decision will be critical and crucial to keep the world's most advanced chips out of China's hands and ensure that Silicon Valley, not Shenzhen, remains the center of the AI And with that, uh, I will now recognize the ranking member from California, Representative K Logger Dove, for an opening statement.
▶ 0:15:32Thank you, Mr. Chair. It's so cozy up here. Um, and thank you to our witnesses for being here today. I'm so glad that we are shining a light on where the Trump administration's export controls policy is falling short, which is in a number of areas if the frequency of our export controls discussion is any indication. Advanced and their sophisticated subcomponents are a particularly important topic.
▶ 0:15:59Effective controls are ones that target the strongest choke points in the advanced chip supply chain. And these technologies remain important contenders for those points of leverage. But a year into the Trump administration, continued loopholes are no longer an accidental oversight. They are de facto administration policy. That's because the key obstacle to a more effective controls is Trump himself.
▶ 0:16:23Over the past few months, Trump has visibly transformed export controls from a national security tool to a negotiating tool that can be traded away to serve his own political and personal interests. Export controls have fallen victim to the same self-serving dealmaking that characterizes the rest of Trump's foreign policy at the expense of US interests. Trump's trade war with China has completely undermined the US exports controls regime by imposing controls to gain leverage in trade talks.
▶ 0:16:52The administration turned export controls into a concession that can be negotiated away. Pausing the 50% affiliates ruling gives Chinese entities a year to create workarounds. Reducing the national security benefits in proportion to the economic impact to US companies. Not only that, linking controls to the trade talks has invited Chinese retaliation to a degree that we've never seen, not even under the Biden administration.
▶ 0:17:18Trump has tied our hands by giving the PRC an excuse to deem any new export control regulation as a restarting of the larger tariff war. Of course, this is not the first time that this administration has prioritized dealmaking with export controls over US national security. Trump [clears throat] rescended the AI diffusion rule on the same day he arrived in the Middle East to announce unprecedented sales of AI chips to the UAE and Saudi Arabia before any security agreements were put in place.
▶ 0:17:48And the day after downplaying the murder of Jamal Kosigible in the Oval Office, he green lit the sale of 35,000 Nvidia Blackwell chips to Saudi Arabia's governmentbacked AI company, Humane. What the supposed cyber security and reporting requirements are and whether this was even a net benefit for US interests is an open and very real question.
▶ 0:18:10It's almost as if the US export control policy is being driven by personal interests of maybe the president or key adviserss whose crypto company reportedly benefited from a $2 billion investment from the UAE in exchange for the Nvidia deal. That's why I introduced a state off amendment requiring an investigation into this apparent quidd proquo which all of my Republican colleagues voted against.
▶ 0:18:36Trump's export control dealmaking has even extended into blatantly illegal territory. The 15% de fee that Trump is planning to charge Nvidia and AMD to sell AI chips to China is explicitly outlawed in the Export Controls Reform Act. And for good reason. It would turn export control licenses into pay-to-play arrangements that allow Trump to sideline national security considerations and extort US companies.
▶ 0:19:03That's why I introduced my BIS license fee prohibition act with um Representative Christian Morphy, which imposes enforcement mechanisms to compel the administration to follow the law. Again, none of my Republican colleagues have signed on. Trump is doing all of this while pursuing counterproductive immigration policies like the $100,000 fee for H-1B visas that is driving away highskilled talent that we need to win the AI race.
▶ 0:19:32Meanwhile, the PRC has just launched a new K visa to attract foreign talent in science and technology sectors. We all have an interest in ensuring US export controls advance our core national security interests. I am so glad um that I'm on the subcommittee and that I work with this chair who is also incredibly focused on these issues.
▶ 0:19:59and I'm glad that this hearing is happening so that we can focus on the fundamental objectives and I certainly look forward to a robust discussion. Thank you and I yield back.
▶ 0:20:08Gentle lady yields back. Uh other members of the committee are reminded that opening statements may be submitted for the record. Uh we are very pleased to have a distinguished panel of witnesses with us uh today and I deeply appreciate your time and effort to be here with us. Uh Mr. Dean Ball, a senior fellow for the Foundation uh for American Innovation, who contributed to the Trump administration's AI action plan while serving as a senior policy adviser at the Office of Science and Technology Policy. We also have Mr.
▶ 0:20:36Chris Magcguire, a senior fellow for China and emerging technologies at the Council on Foreign Relations, who shaped export control policy in senior roles across both Trump administrations and the Biden administration. And then finally, Mr. Kevin Wolf, a partner at Aken Akin Gump, who led export control policy during the Obama administration as the assistant secretary for export administration at the Bureau of Industry and Security.
▶ 0:21:01This committee recognized the import recognizes the importance of the issues before us and is grateful to have you here speaking with us and sharing your insight and your knowledge. Your full statements will be made a part of the record and I ask you that you keep your spoken remarks to five minutes in order to allow time for members [clears throat] to ask questions. I now recognize Mr. Ball for 5 minutes.
▶ 0:21:24Chairman Heisinga, Ranking Member Kum Logger Dove, and distinguished members of the subcommittee, thank you for the opportunity to testify today on this vitally important topic. My name is Dean Ball. I'm a senior fellow at the Foundation for American Innovation, where I focus on AI, emerging technologies, public policy, and geo strategy.
▶ 0:21:41The views I express in this testimony are my own and should not be construed as representing the official position of the Foundation for American Innovation, or any other organization with whom I have a current or prior In July 2019, during his first term, President Trump successfully persuaded the Dutch government to block sales of extreme ultraviolet lithography machines to Chinese semiconductor companies. These machines are the result of a tremendous range of scientific breakthroughs and technological miracles.
▶ 0:22:08Employing lasers, for example, whose precision is akin to hitting a hole-in-one on the moon from Earth to paint submicroscopic electrical circuits with light onto razor thin wafers made of processed sand. At the time, these lithography machines made exclusively by the Dutch company ASML were not widely known outside of the semiconductor industry and its close observers. But President Trump's decision would prove wise and forward-looking.
▶ 0:22:33Within a few short years, ASML and their lithography technology became known the world over as key inputs in the manufacturing of advanced semiconductors. Today, it is widely believed that these controls represent the single most important technological choke point, preventing China from manufacturing leading edge Of course, since 2022, the United States has also imposed export controls on the advanced semiconductors themselves, most relevant to AI. The wisdom and prudence of these controls has been the subject of vigorous debate in recent months.
▶ 0:23:03But that is not my focus today. Instead, I want to focus on the issue President Trump identified in 2019, semiconductor manufacturing equipment. And the reality I wish to convey to you is stark. There are large gaps in current semiconductor manufacturing export controls today. And these gaps have meaningfully enabled China's rapid progress in advanced semiconductor manufacturing. In recent years, we have set on the path of denying China access to the most sophisticated machines in the world, advanced AI compute.
▶ 0:23:32But we have failed to deny access to something perhaps even more important, the machines that make the machines. It should be no surprise, then that China has managed to significantly advance its semiconductor manufacturing industry considerably, even in light of our export controls. I want to emphasize that the US has constructed a sound export control regime for semiconductor manufacturing equipment made by domestic companies.
▶ 0:23:55Our major shortcoming instead is that we have struggled to harmonize those controls with allies whose local companies compete with our own and who sometimes hold near monopolies over the production of certain equipment. This lack of international harmonization can result in insufficient controls on on equipment that is short of the cutting edge but still advance. Perhaps the best example of this is deep ultraviolet immersion lithography machines, the predecessor to extreme ultraviolet lithography. Like EUV machines, these are made almost exclusively by the Dutch company ASML.
▶ 0:24:26These machines can be used to manufacture both legacy chips such as those at the 28 nanometer node and near cutting edge chips that fall within US export controls such as those on the 7 nanometer node. Our lack of international harmonization on export controls creates additional problems as well. In many cases, for example, US firms are tightly export controlled even when their foreign competitors are not.
▶ 0:24:47American companies like applied re applied materials, lamb research and ka make complex tools for etching, deposition, cleaning and metrology, all important parts of the semiconductor manufacturing process. Export of these tools to Chinese firms is largely forbidden by US export controls. Yet, the export of tools that are functionally the same from companies like Tokyo Electron, a Japanese company, is permitted.
▶ 0:25:11Unsurprisingly, the result is that the is that the China sales of foreign competitors have jumped after US export controls, suggesting that American firms are being denied revenue while critical technology flows into China nonetheless. This is the worst of both worlds. Our firms bear the cost of the policy, but the policy itself fails because our allies do not coordinate with us. Two policy tools are at our disposal. One is diplomacy. Diplomatic efforts have been ongoing since the 2022 imposition of export controls during the Biden administration and continue today under the Trump administration.
▶ 0:25:42If these efforts do not succeed, it is essential that policymakers employ the second tool, the foreign direct product rule. This allows the US to impose export controls on foreignade goods if they contain or are directly made with US technology. Both options should be on the table with an aim toward resolving as many of these gaps as is feasible in the near term. Thank you very much. Thank you, Mr. Ball. Uh, Mr. Magcguire, you are recognized for five minutes for your opening statement.
▶ 0:26:08Thank you very much, Chairman Heisenga, rank ranking member comm. My name is Chris Magcguire and I am the senior fellow for China and emerging technologies at the Council on Foreign Relations. Over the last 5 years, I've worked in the National Security Council and the State Department in both the Trump and Biden administrations to develop US technology protection and export control policies, particularly those related to semiconductors. My full written testimony has been submitted for the record and I'll summarize the five key points here.
▶ 0:26:32Number one, strong export controls on theme and components are critical to preserving US technological leadership over China.me is by far the most important input for making advanced chips which are essential to AI and other emerging technologies and to nearly every cutting edge military capability. Is also an ideal target for strong export controls. It is a highly concentrated industry that the United States and our closest allies dominate and advanced theme tools are literally the most complex machines that humans have ever made.
▶ 0:27:02So far proven uniquely hard for China to indigenize as its theme industry is 20 years behind leading edge firms, but it could advance quickly without further action. Strong controls on theme and and its subcomponents which seek to constrain China's ability to manufacture advanced chips or build advanced tools are the foundation of all US technology protection efforts. If we lose our edge in advanced chip manufacturing, America's ability to curtail China's technological ambitions, shape the global landscape, and preserve our military advantages over China will rapidly evaporate.
▶ 0:27:32We cannot afford to get this wrong. Number two, current controls are working, but not well enough. US and allied restrictions have slowed China's progress in advanced chipm, which are currently three generations behind the leading edge and are capacity constrained. The best US chips are currently best US AI chips are currently five times as good as the best Chinese AI chips. And by 2027, Huawei's public road map suggests that the best US AI chips will be 25 times better than Huawei's best chips.
▶ 0:27:59This is because China's manufacturing capabilities are not advancing as rapidly. However, gaps, loopholes, and inconsistent implementation of these policies are allowing Beijing to maintain, build, and expand strategically significant semiconductor capacity. The United States, the Netherlands, and Japan exported over $40 billion dollar worth of SME to China in 2024. SME was the number one or number two export to China from each country.
▶ 0:28:25China is using this equipment to a increase the quantity of advanced chips it can produce and b build out a massive number of mature node fabrication facilities that would enable it to dominate the global mature chip market just as it currently dominates rare earth. We must close these loopholes. Number three, allied controls must be leveled up to match US controls. Key partner countries, particularly the Netherlands and Japan, have not fully matched US controls onme.
▶ 0:28:50In particular, these countries continue to export tools and components to the most advanced Chinese fabs and Chinese toolmakers, and they perform on-site maintenance support at advanced Chinese fabs, which US companies are all prohibited from doing. Insufficient allied controls have uplifted Chinese chipmaking capabilities while also shifting market share away from US firms. Without this support from allied companies, the capabilities of advanced Chinese fabs and tool makers would stall and potentially even degrade.
▶ 0:29:19Number four, expanded countrywide restrictions on theme in addition to comprehensive restrictions on all advanced Chinese fabs and tool makers are necessary to close all loopholes. Only broad countrywide restrictions on all theme capable of advanced production can reliably prevent Beijing from advancing its chipmaking capabilities or dominating mature node manufacturing. The United States should ban exports to China of all tools that can be used for advanced production, specifically all tools capable of 300 millimeter wafer processing.
▶ 0:29:50This would halt the growth of China's advanced and mature node chip production capabilities. The Department of Commerce must also update the entity list to include all entities affiliated with China's national champions in chipmaking and theme. But entity based measures alone cannot keep pace with China's rapid buildout and complex corporate structures. Point number five, US extr territorial controls have proven effective and should be expanded to close gaps between US and allied controls.
▶ 0:30:18The United States already applies extr territorial controls on all but 33 close allies which it currently exempts from these controls. These controls have proven effective and would be nearly impossible for any company to design around given the ubiquity of US technology in the semiconductor supply Suspending all exemptions from these controls until a country adopts fully matching restrictions would seal some of the most significant gaps in theme control regime.
▶ 0:30:46Thank you again for calling this hearing and for inviting me to testify. I look forward to your
▶ 0:30:51Thank you, Mr. Magcguire. Uh Mr. Wolf, you are recognized for five minutes for your opening statement.
▶ 0:31:35oop sorry to know about loopholes uh you have to decide uh what you mean by the term I mean the general meaning of the term is that it's an ambiguity that the regulator missed when writing the rule um the other meaning of the term is that uh there's a gap in the rules that the person talking about it simply doesn't like but to know whether a loophole exists, you have to know what the policy objective is.
▶ 0:31:58Um and and there's some there's some limitations in that um with respect to this area because the moment you start uh imposing rules, you have to then ask are they going to be both effective and not counterproductive. By effective, it means it actually stops the item that you're talking about going to the bad end use or bad end user that you're referring to.
▶ 0:32:19and not counterproductive means you don't end up doing more harm to US industry, thus harming US domestic national security uh to the advantage of their foreign competitors and allied countries. Uh the issue with export controls is that it was created uh and the allies enforce it uh to achieve the objective of identifying the types of items that have some relationship to weapons of mass destruction, conventional weapons or the parts or components or technology used to make them.
▶ 0:32:47and and many of the gaps that are being referred to are a function of the limitation of uh uh the allies taking that classical approach toward export controls that is they will only want to regulate items unless they have um some direct relationship to uh weapons.
▶ 0:33:03The Biden administration uh took a much broader approach toward national security with respect to its effort to use a variety of listbased and inuse and end-user controls uh to cut off the types of items that are necessary for the development of production in China of advanced node semiconductors production equipment the compute for AI and and and supercomputers. Um we haven't yet heard the Trump administration's policy objective with respect to how to accomplish something similar.
▶ 0:33:31Um the issue when dealing with the um with the allies is uh how do you convince them to see that broader national security objective? How do you convince them to look in the way the Biden and the Trump administration have viewed national security with respect to China beyond that classical perspective? Uh the Biden administration was quite successful in coming to agreement with the Dutch and Japanese with respect to a limited series of tools as was described.
▶ 0:33:57But um the Dutch and the Japanese and no other country has agreed to the expansive controls on activities by their companies or certain uncontrolled items for end uses such as helping Chinese companies produce advanced node semiconductors. So um how do we close that gap? Well, I've listed out a bunch of options. One, diplomacy to carrots with threats. Um I mean u sticks with threats.
▶ 0:34:22Um and then in the meantime also changing licensing policy until any of those objectives can be achieved so as not to disadvantage US industry heart uh uh um domestic economic security to the direct advantage of their foreign competitors and allied countries with respect to equipment um uh that is widely available and I look forward to getting into discussion of the pros and cons of of each of these options with you. Um so I'll stop there and look forward to discussing any of the questions you might have. Thank you.
▶ 0:34:50Thank you Mr. Wolf and I appreciate your uh your deep knowledge on all of these things. And interestingly enough, uh my predecessor uh was the ambassador to the Netherlands at the time of 2019. I worked for him for six years as his district director. I'm the former chair of the Friends of the Netherlands caucus, Dutch caucus, uh and was quite aware of what what was happening there uh with the discussions of Huawei and the the inroads that Huawei had made and the demands that Huawei was was making.
▶ 0:35:20Um, so, uh, our, uh, my my predecessor, Mr. Hookster, is now the ambassador to Canada where he's dealing with a few other issues. But, uh, um, I'm going to get to my, uh, questioning here. Um, one, uh, one issue that we have is that our allies have much weaker export controls than we do. As I think all of you have have pointed out, the result is that when American companies are restricted from selling to China, sometimes those Dutch or Japanese companies backfill uh the that lost sale.
▶ 0:35:50And uh to to address that, I recently introduced HR6058, the stride act uh to improve export control coordination among allies and to stop those free passes. U Mr. Ball uh you know, how important are chipmools? I mean, you you touched on it. I want to just give you another uh crack at this, but how how important are those shipmaking tools to the USChina AI
▶ 0:36:15I think those tools are foundational. Uh it is the very clear objective of the Chinese government to uh not just catch up but surpass the west in terms of advanced node semiconductor manufacturing. uh and in addition to that I I I I would also highlight the legacy node issue as well uh as being uh of critical importance.
▶ 0:36:39Uh the reason for this is uh in fact really one of the the a key impetus for the chips act was the imposition uh was the the supply chain crunch that we had during COVID uh automobiles, consumer appliances, industrial equipment, things like this, shortages of semiconductors. Those were shortages of legacy node semiconductors. These are critical inputs to any advanced economy and you can shut down any advanced economy uh if you control those inputs.
▶ 0:37:09They're low margin goods. The economics become very similar in some ways to rare earths and critical minerals. And so you could see that choke point being uh critical leverage point. So I'd say both legacy and advanced semiconductor manufacturing is
▶ 0:37:23Uh all right, I've got a couple of areas I need to move quickly through, but Mr. McGuire. Um, in what ways, uh, are allied countries backfilling for these US companies and and and does legislation like Strive or others help to address that?
▶ 0:37:39I I would note four things. Number one, at advanced Chinese fabs, they can still export non-advanced tools which allow them to build out their capacity. Number two, allied companies can still service tools at advanced Chinese fabs and can also service advanced tools anywhere in China, which allow them to maintain the tools. Number three, uh the the allies can exempt um components to ch sorry, components to Chinese tool makers.
▶ 0:38:03Um and then number four, there are certain advanced allied tools, the DUV machines in particular, that uh can still be exported to China. Uh we urgently need to close these gaps and I think legislation would be very helpful.
▶ 0:38:15Okay. U some argue that because Beijing controls the supply of rare earth magnets, something that's big in Michigan with our automotive industry, the United States cannot protect its technology from Chinese exploitation. However, I believe that we are stronger than we think. But I worry that uh backing down teaches China to abuse any perceived leverage that they may have, whether it's from tariffs, fentanyl to uh to to Taiwan. Uh the uh there's an old Leninist adage, you probe with bayonets.
▶ 0:38:43If you find mush, you push. If you find steel, you withdraw. Uh, and it seems that the CCP follows that quite closely. Um, Mr. Magcguire, what should the US do to deter Beijing from weaponizing its rare earth supply so that we can make sovereign policy decisions without retaliation?
▶ 0:39:02And is it possible uh to even do that?
▶ 0:39:06Absolutely. That's a great question. And I think it's important to note how much more expansive the Chinese rare earth controls were than anything that the US has on the books. Uh I think that something that the US could do if the Chinese go back to the well of wear rare earth and and start to deny licenses is basically to impose an equival or to impose an equivalent regime on semiconductors.
▶ 0:39:25So what that would mean would if if you require a Chinese license to make any advanced chip then it's only logical to have any ex any export of any advanced chip to China meaning any 14 nanmter or more advanced chip require a US export license we're not saying we're necessarily going to deny all those licenses but if the Chinese are going to require a license then we have to require a license too that would put extremely ownorous restrictions on China and effectively make their entire technology industry go through the bottleneck that is BIS I think it would make it would be very painful
▶ 0:39:55for them and it could cause them to pull back on their controls.
▶ 0:39:58And it seems to me that that's why it's critically important the some of these agreements that we've had newer agreements on rare earths with some other countries uh recently. So all right I I mean I've only got a 30 seconds here but while US allies uh do have controls on some chipm equipment exports to China um the export of essential subcomponents make chipm equipment uh like electrostatic chucks and advanced optics is largely unrestricted. Um Mr. ball.
▶ 0:40:24If the US and allies have enacted export controls to restrict China's excess for producing chips, does it make sense that China continue to be allowed unrestricted sales of subcomponents into China? And uh Mr. Wolf, some PRC chipmaking equipment companies have already been added to the commerce blacklist known as the entity list. Uh do other currently unlisted PRC chipmaking equipment companies also conduct the same activities as those already blacklisted by commerce? If so, which ones? My time has expired.
▶ 0:40:53I may need to um hold that. Uh and certainly I would like to get that in writing and and possibly if we have a second round I'd like to revisit that. Um so with that I will recognize the ranking member for uh for her question period.
▶ 0:41:10Thank you so much. You said the entity and it made me think of Mission
▶ 0:41:15Um so Mr. Magguire, what would you say are uh some of the potential security concerns with offshoring our most sensitive AI technologies to a country say like Saudi Arabia.
▶ 0:41:29So I think you have some physical and cyber security concerns that uh obviously these are kind of very difficult environments to operate in. You want to make sure that the chips are physically secure. Also that the the models are secure uh in the locations and you also want to make sure that the compute that's in those locations is not being used to help our adversaries or otherwise undermine US national
▶ 0:41:52Thank you. That was succinct um and and um illuminating. I agree. I think it's important um and I I actually would hope Mr. chair, uh that be on behalf of the subcommittee, you could request a classified briefing, um um kind of on this agreement that just happened so that we get some more visibility and daylight into it.
▶ 0:42:14Uh and can maybe bring back other folks to um help us understand all of the things that may or may not be um in um the agreement that just happened. if you don't mind. There are discussions uh on some classified briefings for a number of issues, but that would be one of them.
▶ 0:42:32See, that's why you're a great chair.
▶ 0:42:35Um so, Mr. Mr. Wolf, um I think that you can undermine the effectiveness of export controls when you make export controls negotiable. Um what do you think about that?
▶ 0:42:48Um I'm agree. I'm a purist. If something warrants control because of national security concerns, it might go to a bad induce. Bad end use or bad destination, it should be controlled. If not, then not. And the moment you start negotiating on that, you compromise that national security objective. That's that's been the rule forever. Um uh things are different now with as in the previous set of questions with the leverage China has with respect to the rare earth topic.
▶ 0:43:13uh changing that fundamental calculus and um it's extremely complex other than developing supply chain supply chain autonomy as CFR came out the other day in terms of supply chain security issues particularly on rare earths we're sort of short right now for good ideas uh to address that but fundamentally what you say is absolutely correct
▶ 0:43:32right and even though things may be different now what should be different is that national security our national security should never be negotiable Um, so I just and it should not also ever be for sale. Uh, so Mr. Maguire, does charging a 15% fee do anything to address the national concerns of selling an advanced AI chip like the H20 to
▶ 0:43:58Uh, with the caveat that I would defer to council on the legality of those provisions. Uh, no, I don't think it
▶ 0:44:05Okay. Um, well, so I but I I think we have um administration that when they want something, they get it done. I'm going to just say that because they've wanted to do a lot of things and they've been getting them done, right? So, I think we should be thinking about that. Um, and we should also be thinking about revenue schemes when it comes to things like these AR chips. So, Mr. Magcguire, do you think that selling Blackwell chips to China would harm our national security?
▶ 0:44:35Yes, I do. And I was very pleased that the president said that that was not the
▶ 0:44:39Right. But once again, um not saying some having saying that there's not going to be a plan. Uh and then for example, having a big glossy dinner like what we saw last night, I think should raise concerns for any uh China hawk or person who's invested in our national security. And I just have to say um there this room should actually be full of people.
▶ 0:45:03we should actually be in the larger hearing committee room because of the event that happened last night where you saw AI titans embracing the administration. Um and then we hear this deal and while 35,000 um Blackwell chips might not sound like over a 100,000. It should it still should raise the eyeire enough for everyone to want to be in this committee asking questions about what happened about what's in this agreement about what's in this deal.
▶ 0:45:32I remember last year, former chair, um when we had the secretary of state in our hearing room asking questions to a room full of interested people, asking real probative questions about national security and what was at stake.
▶ 0:45:50And I think I think that agreement that was made yesterday, I think that dinner that happened yesterday should have everyone's eyes wide open about the five alarm fire that we could potentially be grappling with with the revenue schemes and the profitelling questionable schemes of these chips. Mr.
▶ 0:46:14Magguire, you said yourself thatme is the most advanced technology on the planet and we should be asking these kinds of questions every single time we get Thank you, Mr. Chair, for indulging me for those extra seconds and I yield back.
▶ 0:46:30Chair wasn't paying attention, but sure. Yes. Uh yeah, [laughter]
▶ 0:46:35thank you anyway.
▶ 0:46:36Uh you are you are very welcome. And we you acknowledged our uh our chair ammeritus uh or merito
▶ 0:46:46well sorry my
▶ 0:46:48is male entire
▶ 0:46:51Yes. So my
▶ 0:46:52I took Latin.
▶ 0:46:52Yes. So my lat my Latin genders
▶ 0:46:55my Latin was uh a little weak but uh the uh while the uh while we appreciate his his attendance uh that we are my understanding is with committee rules was we you go through our committee subcommittee members first and and then
▶ 0:47:10see that's what happens when you're not a chairman anymore. I watch the door uh
▶ 0:47:16but your but your your your attendance is appreciated because of your attention to this issue over the last
▶ 0:47:22I will have to return at a later time
▶ 0:47:26uh and unless our uh unless our colleagues are willing to uh to to yield that's yeah you all right gent [clears throat] gentleman yields so with that we will uh we welcome the chair emmeritus uh to the committee and recognize him for five minutes.
▶ 0:47:42Well, I thank the chair for your Um, you know, this this is an issue I think is so important and I I I worked on this when I was a young federal prosecutor at Department of Justice in Um, prosecuted the campaign finance violations from China.
▶ 0:48:02Johnny Chun led us to the director of Chinese intelligence, China Aerospace, putting money into his Hong Kong bank account to influence the presidential election. And and why? Because they wanted dual use satellite technology. They wanted to be a member of the WTO. They wanted China aerospace to be the beneficiary of our technologies. And since that time they have come a very very long ways.
▶ 0:48:33Um I introduced Chips for America Act at the behest of Secretary Pompeo and Secretary Wilbur Ross in the first Trump administration to pull the manufacturing out of Taiwan where 90% of the advanced production is made into the United States so we can truly make America first in manufacturing of semiconductor chips. They got politicized unfortunately, but it it's working.
▶ 0:48:58Um, you know, Deepseek is is disturbing to me because we we sold it to them. Nvidia, [snorts] God bless them, and it was legal in their defense at the time, sold the advanced chips that allowed China to make the first AI deepseat technology, which is now banned and would be illegal under current law. But the damage is done.
▶ 0:49:24Um, now they're creating all these AI uh chips. In fact, in open AI, I was told yesterday that China is actually ahead of the United States. So, in this in this great power competition, we have a lot of work uh to do. I want to bring up just a couple. First of all, Mr. Ball, your your point on the foreign direct product rule is spoton.
▶ 0:49:48um you know Japan and Netherlands entered into an agreement with the administration but the problem is a lot of that technology is already out the door to China and I I do believe Mr. chairman that invoking this foreign direct product rule would be very appropriate uh you know in this this case. Um my questions are you know they they can get around this real easy.
▶ 0:50:12The entities list you know you had Shanghai uh Byron on the entities list advanced AI chips uh it was banned from the sale to China. Then they change their name to Shanghai Byron Semiconductor Technology and they get around it.
▶ 0:50:34So I'm working on legislation that would basically set a statutory standard that would ban any affiliate that's 50% or more owned by a blocked entity. Do you believe that would be helpful? And that would be at BIS in the commerce department over which we have jurisdiction. Do you think that would be a helpful step, Mr. B? uh I haven't examined that closely enough to give a good answer here.
▶ 0:50:56But what I will say is that I think the foreign direct product rule is uh worth considering codifying in legislation and I would also say that country controls are are likely more appropriate than entity controls for a lot of these technologies for the exact corporate plability reasons that you mentioned.
▶ 0:51:11So there was a bit of a debate be I about sector versus entities list individual and then sanctions and um I just my problem is if you ban a specific company they can change the name of that company overnight and you're you're off the endless Mr. Maguire.
▶ 0:51:30Yeah, I I completely agree. I think we need to do both. I mean certainly on the the most advanced Chinese fabs, we certainly should make sure that they are blocked from all US allied tools and completely blacklisted. The fact that allies can backfill is problematic. But I think you're completely right that the only controls that really we know will work and given the importance of this, it is really important that we apply we apply controls that we know work and thank you for your leadership on this issue over the years.
▶ 0:51:53Uh I think it mandates that we have expanded countrywide controls to make sure that we get everything that is actually going to help the Chinese with advanced production. And the best way to do that from a def definitions perspective as the China committee I think highlighted in their report is to just do all 300 millimeter tools all tools capable of 300 millimeter waiverss which would that's going to there's no way that you could make advanced chips with with um any w any 200
▶ 0:52:17that's a great point. So you know my my view is like we they steal it to a very large scale and we get that in our classified briefings but we don't have to sell it to them. Uh, I think I'm I'm worried on the advanced chip level. We've already the the horse is out of the barn. The damage is done. They're building a very high level legacy capacity of chips to counter our advance. Um, but I think to the chairman's point, we're getting now into the manufacturing process.
▶ 0:52:47I I see no reason first of all that we should be selling AI militaryra technology chips to China. Number one. And then number two, any manufacturing tools that could be used to make um AI military grade technology. Just quick response.
▶ 0:53:05Completely agree. I think we should we should really block the Chinese comprehensively from being able to buy, make or rent access to US AI chips and Congress should definitely help uh across the board. All three of those.
▶ 0:53:18That gentleman's time has expired. Uh with that, uh the gentle lady from Texas, Miss Johnson, is recognized for five minutes.
▶ 0:53:25We're just doing a Texas twostep at the
▶ 0:53:29Um thank you so much, Mr. Chairman. Um and thank you all for being here today. Across the nation, our inventions and innovations provide a competitive edge that our adversaries wish they had. I know this well because my district is home to Texas Instruments headquarters, one of the top semiconductor companies in the world, and Corvo, which produces parts for the F-35s and other key defense applications, and many more. We can't let our adversaries take advantage of our clients and our talents.
▶ 0:53:58As this committee has highlighted throughout the year, export controls enforcement is a priority. The current administration claims to agree, but under Trump, the Bureau of Industry and Security has shown a breakdown in process and complete absence of vision, and it is losing talent to a devastating degree. Mr. Wolf, given your extensive experience in BIS, what can you tell us about the reasons for such an extensive personnel turnover?
▶ 0:54:23Um, I think they're consistent with the other 300,000 or so federal employees who are not here now that were before, and it BIS is not unaffected by any of that. Um, uh, I would ask that this committee do whatever it can to help the staff there to in, uh, work with the bureau to find ways to hire subject matter experts in AI and semiconductors and chipmaking tools and biotechnology because in order for there to be thoughtful policy in these really complex areas, they need a lot more subject matter experts and bipartisan support.
▶ 0:54:54Um, uh, I'll leave it at that.
▶ 0:54:58Yeah. And it's but it's it's not only just the technology experts. There's also experts on Russia, China, Iran.
▶ 0:55:05Absolutely. Mandarin speakers, people with intel experience, people who can support the enforcement efforts. Um, Secretary had a great line about wanting to make BIS the, you know, the sexiest, most exciting place in government to work. And I fully in in support of that mission and I ask all of you to help try to sponsor that, to work with BIS to encourage people from Silicon Valley and others to want to work for the government to support the mission that you all are describing quite well.
▶ 0:55:28Right. Yeah. I'm very concerned about the talent drain. Um because we can have all the policies in the world, but if we don't have the talent that's smart enough to figure out how to enforce them and how to enact them, then we're not going to get very far.
▶ 0:55:41And I do think it's incumbent upon this committee um to insist to the administration that they reverse some of their practices and, you know, try to rebuild the strength of our workforce to the to the highest capacity possible. Um, I want to turn to just a a slightly different uh topic.
▶ 0:56:02We know that our adversaries are working overtime to obtain United States defense articles, services, and related data from military encryption and communication systems to missiles and satellites. We also know that our export control regime is in place to thwart these bad actors, but violations remain a persistent challenge. Does the State Department's use of outside monitors, also known as special compliance officers, enhance company's compliance with export controls rather than the threat of large dollar penalties? What is what is your take on that?
▶ 0:56:31Well, I am a special compliance officer and an outside monitor. strong views about that and absolutely with uh someone from the outside with expertise in the area with independence who reports directly uh to the state department. It can result in a lot more attention by the company on a day-to-day basis of creating the systems and procedures and hiring the experts and other personnel to do all the things that you're describing.
▶ 0:56:54And I think that that has a much better impact on a company doing the hard work that needs to be done than just simply a large dollar penalty or the threat of it.
▶ 0:57:02Yeah. And you know, on a on another note, in previous hearings that we've had, we've talked about the need for increased whistleblower protections and key protections in this area to ensure that we are notified of bad actors and when the export controls are violated. Um, can either of you all speak to the importance of of strengthening those
▶ 0:57:25I know the I know the area is working well in government contracts and other parts of law. I've never actually seen it applied in export controls uh or where it would have not resulted in um uh uh a disclosure of some sort, but I'm happy to work with you to take the benefits of government contracts and apply it to export controls.
▶ 0:57:43Yeah, in in previous panels um other experts have testified as to the urgency for this because again we can have policies and we can have um out there but if we don't have enforcement mechanisms and if we don't have protections for those who are in the deep deep parts of the world to be able to report violations and protections for those viol those uh reporters those whistleblowers um then again you know we'll we're going to miss uh a lot of the battle and Um, based
▶ 0:58:14on these, I just want to share with the committee I have a bill um on this issue and I would love to have everyone here sign on on that and have it be a joint uh effort from this committee to strengthen the whistleblower protections on export controls. And with that, I yield back.
▶ 0:58:28Oh, we'd love to uh to review that legislation. So, um, with that, the gentleman from Pennsylvania, Mr. Perry, is recognized for [clears throat]
▶ 0:58:36Thanks, Mr. Chairman, and thanks, gentlemen, everybody for being here. I just got to spend a couple moments editorializing. I feel like I have to uh when we talk about some of the things that force America to do what it has to do when we talk about rare earth minerals and the components that go into some of this machinery and the products we need to make. We we need to quit calling them rare earth because they're not rare. They are critical. But America because of our policies have said we can't get them either here in our country or elsewhere.
▶ 0:59:05and that is hobbling us all for the sake of I don't know the endangered species act or or climate change. Like if we want to save the country, we better understand that we're causing some of the problems ourselves. And while we can complain about the Trump administration dealing with what is, we can also talk about the fact that we got a bunch of bureaucrats, particularly in State Department, that have been there through through administration after administration who pick our allies over America. And we've got to work with that.
▶ 0:59:36And we can't get rid of these people even when they're not for America. and and things like the foreign direct product rule which was supposed to be our silicon sword um you know it it has it has not been effective because we have in the last administration we've carved out we've carved out loopholes for Japan and the Netherlands am I right Mr. Wolf, we we've carved them out, right? And and the machinery has gone to has gone directly to Beijing and nobody said a damn thing about it. Right.
▶ 1:00:02Well, the hope was that the allies would impose their own control.
▶ 1:00:05The hope hope is not a course of action. That's like we're in a fight for the future not only of our country but for the free world and we're basing it on hope. Like that's ridiculous. I'm sorry. It's just that's absurd. Like I I I'm around serious people and this is a serious issue. So, we got to be doing serious things as to as opposed to hoping that they're going to align with us in some at at some point in time. Um, harmonize with us.
▶ 1:00:33We We're going to either have to force this to happen or it's not going to happen because people seek their best economic benefit and outcome. That's what that's what we all do. And these people want to make money and God bless them. I understand. And there's a huge market in China and they want to sell to it because they make a lot of money. Somebody has to care for America's sovereignty and security and the sovereignty and security of civilization. That has to be the serious people. So, we have to do something about it. Let me ask you just a couple other questions.
▶ 1:01:04Mr. Wolf, you're Look, I I I like your purest attitude. You are a um an expert on on the uh the export administration regulations and and ITAR. um I don't know if that's given us a ch Have you have you had a chance to um wh why how the blacklist works and doesn't work in terms of those two things and then I'm wondering if you think and I I think this goes directly to
▶ 1:01:34what you love the Bureau of Industry and Security and the Department of Commerce only has two as I understand it two export enforcement officers for the whole of China is that two Uh yes sir correct
▶ 1:01:49six in the world
▶ 1:01:51I I don't know that seems lacking to am I missing is is the portfolio pretty small so they
▶ 1:01:56no which is why historically u export controls have been most effective when we convince other countries that are producer nations to impose their own controls and use their enforcement authorities overseas to achieve a common security objective and that's been the that's been the tradition and the difficulty with the any list rule that you just mentioned is that no other country has an entity list rule. No other country imposes sanctions against individual companies.
▶ 1:02:21And so when the US imposes an entity list action, which is quite deserved and warranted, and I used to run the program, and I'm glad that it's active, um it has very limited effect after a short period of time because by definition it only applies to nonsensitive, widely available commercial items, which means that all a company has to do is shift away from the US origin item to the foreign origin item. Then the any list rule has no longer any effect.
▶ 1:02:49Okay? So, we got to find a way to solve that problem because it's with the best of intentions, but it requires um cooperation and collaboration with other countries and other companies and folks and they just don't simply have the same impetus motivation that that we do or should have. So, in that vein, should chipmakers be required to export only through certified logistics providers? For instance, making exports easier to track? I know it's painful. I'm a capitalist.
▶ 1:03:19I don't like the regulations, but this is important stuff and we have to be able to control it.
▶ 1:03:23Well, on this issue, the diversion risk is less the topic on tools. It's to get other allies to impose their own controls or in the meantime not harm US industry by licensing policies that are more restrictive than their foreign
▶ 1:03:37And one last question, should we be should we require ping enabled base location verification for this stuff? So at least do we know where it is and does that help us at all or is that
▶ 1:03:48that creates significant security issues with respect to back doors and access and the ability to track chips in a way or hack chips that we might not like. There are other solutions that aren't onchip governance that might work in terms of the package for diversion risk issues but probably not with respect to on the chip itself. I yield
▶ 1:04:05gentleman's time has expired. I I will note that the uh the house proposed an increase in those BIS inspectors. uh indications are that the Senate is lowering that number. Uh so uh we may want to try to address that as well. Um with that uh seeing no uh additional Democrat colleagues here right now uh we will go to uh the delegate from Guam, Mr. Mand for five minutes.
▶ 1:04:33Thank you Mr. Chairman and ranking members and our distinguished witnesses. Today we're confronting one of the more recently recent security issues of our time. Whether the US can maintain AI dominance over the People's Republic of China. And that boils down to one question. Who controls the full AI ecosystem? Not just the chips, but every tool, input, and subcomponent that enables artificial intelligence.
▶ 1:05:02So we must look at the facts and ask why was China able to develop AI models that rival our own even after we restricted the access to our most advanced chips. The simple answer is because China advanced advanced using the parts of the ecosystem we failed to regulate. Without allied coordination, China will always find a way around around this.
▶ 1:05:29This is why our strategy cannot be peacemeal, reactive, or target just the most obvious components of AI technology. It must be ecosystemwide and coordinated with our allies. This is precisely what my legislation, the China AI Power Report Act, seeks to do, and I will introduce this bipartisan legislation tomorrow.
▶ 1:05:54Under this legislation, the Department of Commerce will require to conduct a comprehensive annual assessment of China's entire AI ecosystem. This includes everything from chip design to fabrication tools to AI model development. Most critically, it will pinpoint the loopholes in our current export controls. This issue is important to me. China's AI gains are gains for its military.
▶ 1:06:22And nowhere are the stakes of this national security challenge more evident than in the Indo-Pacific. And nowhere more directly than in Guam, the district I represent. So closing the loopholes is essential for our security for Guam and across the nation. So Mr. uh, question for you, sir. Are hardware controls alone insufficient?
▶ 1:06:49And will we need to look more closely on China's computer capacity and its ability to use cloud system for non-civilian and use
▶ 1:06:59Uh thank you sir. I think that is very much an issue worth examining. Uh remote access is an area not just for consumer and enterprise technologies but also certainly military. Uh and so I think that is very much uh something that that we need to examine very closely and I'd be happy to give you more thoughts after this hearing.
▶ 1:07:16I appreciate that. We we will. Uh Mr. Wolf, should export controls put in place a maximum computer capacity for Chinese-based end users and is it possible to regulate it in that way?
▶ 1:07:29Um well that already is largely the effect of the embargo with respect to high-end um GPUs and other items to China. So that does exist already and so far the Trump administration hasn't changed that rule.
▶ 1:07:43Okay. And one more for you, sir. Does BIS or any other federal agency currently know the amount of computer capacity China uses from data centers outside China that rely on US chips?
▶ 1:07:55I don't know if anybody knows the answer. I don't know the answer to that
▶ 1:07:58How can we find out?
▶ 1:07:59I uh well uh the intelligence service agencies and and BIS to dive into it as a special project. I don't know if anybody has studied that.
▶ 1:08:08Uh there are no restrictions on China's access to uh US cloud services now. So actually theoretically the amount of computing power that Chinese companies have access to is unlimited.
▶ 1:08:22I agree that's a problem.
▶ 1:08:24Okay. Thank you. Thank you to our witnesses and thank you Mr. Chairman.
▶ 1:08:28Gentleman yields back. Uh with that uh we will go to uh Mr. Kained from New Jersey for five minutes of questioning. Thank you, Mr. Chairman. Uh, and thank you to our distinguished witnesses for being here today. China is notorious for its ongoing efforts to obtain illegal access to American innovation. Its efforts to steal America's innovative technologies and gain a foothold in the AI race must be thwarted.
▶ 1:08:58I look forward to hearing from our witnesses today about how we can address numerous loopholes in our export control regime, shoring up America's technological edge. Mr. Wolf, uh, the information technology system at the BIS need critical security updates to effectively block adversaries from exploiting critical US technology. Congressman Crowe and I introduced the BIS IT Modernization Act to keep American technology out of the hands of foreign adversaries.
▶ 1:09:28Can you share how secure IT systems at the BIS are critical to keeping American technology out of the hands of our our enemies? No,
▶ 1:09:37thank you for that bill. I think I actually cite it as something positive that should be done. The IT system is ancient um um and needs to be improved. Uh it's critical that the agencies be able to share information and secure a system, work with classified information directly, be able to task the intelligence community for information, protect uh data that's filed by companies as part of applications, uh and for uh uh analysts to be able to uh do what they do without fear of excfiltration.
▶ 1:10:05So please pursue those IT modernization efforts on a bipartisan basis with all you can.
▶ 1:10:11Thank you. Uh Mr. of all uh export controls are critical to our national security. The center for strategic and international studies has claimed in terms of return on investment an increase in BIS's budget is likely to be one of the best opportunities available anywhere in the in US national security.
▶ 1:10:29President also recognized the importance of BIS requesting a funding increase in his budget request for this important Do you agree that increasing the budget for the Bureau of of of Industry and Security is critical decision that should be prioritized this fiscal year?
▶ 1:10:46Yes, sir. I absolutely do.
▶ 1:10:49Thank you. Uh Mr. Magcguire, um China has a long history of smuggling US technology to evade export controls. A recent report from the Center for New American Security indicates that China has been evading US export control regime to smuggle somewhere uh from 10,000 to several hundred thousand AI chips into China in 2024 alone.
▶ 1:11:15Could you please share how a whistleblower protection program could strengthen the work of of the Bureau of Industry and Security Officials in enforcing America's export controls?
▶ 1:11:26Sure. Sure. I mean, I think the BIS needs absolutely needs to be able to partner with industry to highlight where uh there is circumventions or violations of controls. Um that's very important and to the degree that there are people that are in in industry that are are you know see malfeasants and are willing to call it out. We should absolutely welcome that because those people are are you know patriots that are really trying to help the US government.
▶ 1:11:48The the other thing I'd say though is that you know the fact that the US government actually has no license requirements on the vast majority of the countries in the world for these chip shipments is actually mostly why that diversion is occurring. Uh you know look at Southeast Asia, Malaysia, Thailand, Indonesia, uh Singapore, the US government doesn't have to be notified about chip shipments to these countries.
▶ 1:12:11So when you're talking about where's the diversion coming from, it's very likely from these and and if we had some ability to track the shipments from the start, it would certainly make it a lot easier for us to find out if they were if they were going to China.
▶ 1:12:24Thank you. And then to to all of the witnesses in the little minute remaining, u there's no doubt that significant loopholes remain in America's current export control framework. Could each of you share what elements you believe should be prioritized in strengthening our export control framework?
▶ 1:12:41Just one following comment to the budget both for enforcement which is where a lot of the attention has been which is critical of course but also for export administration where I come from the analysts the licensing officers people that support export enforcement need the same degree of help same degree of budget support the same degree of recruitment efforts uh to do the analysis and support enforcement and efficient licensing. So I just want to add that extra point.
▶ 1:13:03No, thank you for adding that. Anybody else want anything else we need to be looking at?
▶ 1:13:07I'd say three things. uh number one countrywide controls on China on uh an expanded set of tools with the foreign produce direct product rule as has been discussed to prevent them from making the chips. Uh number two, a global license requirement that or you know at least on a expanded set of countries uh that allows us to make sure that they're not diverting the chips into China and then number three remote access restrictions that prevent Chinese companies from training on US cloud uh and give it limitations on what they can access remotely.
▶ 1:13:37I would just emphasize remote access restrictions as well.
▶ 1:13:40Thank you. Thank you to our panel. Uh yield back to the chair.
▶ 1:13:44Gentleman yields back. Uh with that, uh gentleman from Indiana, Mr. Shrieve is recognized for five minutes. Thank you, Mr. Chairman. Uh Mr. Meuire. Um, under current law, BIS maintains the uh commerce control list and entity list and companies like Huawei and Smick are already on that list because they support China's military buildup and the surveillance But here's a whole and this is
▶ 1:14:14uh in agreement with and in furtherance of the the points that our chairman Amerita made a bit earlier. uh BIS can only list the foreign persons, not US incorporated subsidiaries and those same adversarial companies who own a control. So a Huawei or Smith subsidiaries sitting on our soil can legally acquire sensitive technologies and funnel them right back to China.
▶ 1:14:44So my question uh would expanding BIS's authority to add those US-based subsidiaries to the entity list help prevent sensitive technology to being re routed to strategic adversaries like China and I heard at one point in testimony at 50% owners ownership threshold and in your view is that sufficient?
▶ 1:15:10So thank you for raising this. I I think this is actually a very important point, a very important loophole that has uh you know largely gone unressed. The fact that Chinese companies inside, take AI chips, the only place in the world that Chinese headquartered companies, a subsidiary of a Chinese headquartered company is allowed to buy a US chip under US law is in the United States of America. And that's legal. That's silly, right? Like that should absolutely be restricted.
▶ 1:15:37The reason it's not is because export control authorities can't govern, as you noted, sales inside the United States. Now, there are other ways that BIS might be able to resolve this, specifically with ICTS authorities that restrict transactions inside the United States. So, you might not need to use export controls.
▶ 1:15:51That said, one way or another, covering this gap and also having Congress codify the authority to cover this gap, whether it be for Huawei Smick or or kind of any entity that is covered by export controls or other sanctions inside the United States, is a a critical part of our regime that we absolutely need to cover.
▶ 1:16:10Just to follow up on that, yes, the other authority within BIS, the information communication technology supply chain authority would be able to address the incountry activity you're referring to. And then to the extent that company or any other company wanted to send something back to their mother ship whether it's a toothbrush or semiconductor technology would already be prohibited by existing controls. So the two have to work together to address your objective.
▶ 1:16:31I appreciate that. Uh Mr. Wolf um uh in enforcement of course is is critical and that's what we're largely talking about today. BIS officials wear a second hat uh are the ones charged with helping US companies helping US companies understand and comply with these rules and they coordinate with partners who share our national security priorities um coordinating with trusted trusted partners to strengthen our security. But given the scope of that mission and this is in furtherance to Mr. 's point.
▶ 1:17:02Should Congress consider increasing BIS's resources so they can actually execute on those responsibilities? We know there are two export control officers, but if you agree with this uh line of question, which I think you do, can you add some color as to what materially uh that expansion of resources might look like so we could execute on that mission that BIS is charged with, which is
▶ 1:17:30Yeah. No, I'd be happy to give you a longer list than what I included in my testimony, but on your first topic, education outreach to ensure compliance and understanding is absolutely critical. As you saw from my attachment, these rules are insanely complicated. And in order to help companies comply and not inadvertently make mistakes, they need to understand them. And that is a core mission of BIS that should be supported. with respect to the overseas officers. You could add a hundred more officers uh overseas to do in use and end user checks.
▶ 1:17:57But until you can get buy in by foreign governments of a common security objective, you're never going to be as effective uh at adopting the uh the goals that we're all just describing today. So really working with the allies is key. And as the chairman mentioned at the beginning and others um the impact of the rare earth issue is limiting the ability of the US government to do some of that work right now as evidenced by the pullback on the affiliates rule and some of the other activities that have occurred.
▶ 1:18:25So supply chain independence with respect to rarers uh is is critical but in the meantime don't do more harm than good with respect to what is in US industry and applying policies that are more harsh for US companies than they are for their foreign competitors. by definition handing the markets over to the foreign competitors. So, it's a combination of each of those three different topics big picture, but I'll give you a longer list later if you like.
▶ 1:18:48All right, Mr. Chairman, my time's expired, but I appreciate these responses very much.
▶ 1:18:52Uh, your t time has expired yet, as they say on television, but there's more. Uh, we're uh with with the indulgence of our witnesses, uh, the ranking member and I would like to continue with a quick second round. So, if you stick around, you could maybe explore that a bit more. So, that's all right. witnesses. All right. Uh, great. Appreciate that. Um, I'm going to return to my kind of final question that I didn't really have time to get an answer on.
▶ 1:19:20We're talking about the chipm equipment and and uh and as a result that uh there's new Chinese chipm equipment companies. uh these companies are experiencing double-digit and triple-digit revenue growth, particularly for sales of less advanced tools used to make foundational chips that serve as the backbone of the modern digital economy. So, Mr.
▶ 1:19:40Ball, if the US and allies had enacted export controls to restrict China's access to tools for producing chips, does it make sense that we continue to allow unrestricted sales of subcomponents into China, particularly when these subcomponents are almost all made by either US or allied companies?
▶ 1:19:57Uh, no sir. I don't think it does. Uh some subcomponents are generally applicable sort of industrial subcomponents that you you export controls would have different implications but there are also highly specialized subcomponents that go into lithography machines, metrology machines, many other things and uh those subcomponents are their critical inputs and I think should be export controlled in coordination with allies.
▶ 1:20:20Great. Appreciate that. And Mr. Wolf, you had you had talked a little bit about the entity list. Um and uh did my question was do you uh do other currently unlisted PRC chipmaking equipment companies also conduct the same activities of those already blacklisted by commerce and if so which ones and how do we deal with that?
▶ 1:20:39Yeah. In December of last year the Biden administration added many but not all of the tool companies and I don't know the reasons for the differences why some weren't listed. I think they should be. I agree completely with the need to work with the allies because a lot of these parts and components are made in allied countries to cut off the supply for the same reasons.
▶ 1:20:56There's a there's a sort of an evolving structure of a smaller group of co close allies called the vasador minus one which is a smaller group of uh producer nations outside of Russia by the way is where the US embassy is in in the Netherlands
▶ 1:21:10or consensus minus one and um and that would be I think even consistent with Trump administration policies and worldviews the the organization to work through to try to accomplish on a multilateral basis uh controls on the uh the chipmaking components and also sanctions by their countries ries against the remaining Chinese theme companies. I don't maybe somebody from you know earlier could explain why some of the tool companies were listed but not all. I don't know the difference.
▶ 1:21:34Okay. Uh in a recent report by the semiconductor industry research firm Semianalysis found that the biggest roadblock for Chinese production of advanced AI chips to the CCP's struggle is the CCP's struggle to produce high uh bandwidth memory. Uh Mr. Maguire, um, could you please explain what high bandwidth memory is and how it relates to this development and could you walk through the key Chinese companies involved in AI chip production and how US and allied export controls impact those companies?
▶ 1:22:05Sure. Uh, so high bandwidth memory is is essentially very very fast memory uh that is almost uniquely used in high-end AI chips uh that are needed for the training and operation of uh advanced models. uh with with with this kind of very sophisticated memory, it couples with the very sophisticated processor to create the the capabilities um of these kind of supercomputers in a chip. Uh it is uh it is in very short supply.
▶ 1:22:33It is almost exclusively made in in Korea uh by allied firms. China's trying to make it themselves. Uh the key Chinese chipm uh memory maker is CXMT. CXMT is not on the entity list. Now they are probably covered by some US controls due to some enduse regulations. Um but the fact is there is some lack of clarity here. Uh we absolutely should make sure that CXMT is fully restricted from US and allied tools.
▶ 1:22:58Also that YMTC which has subsidiaries that make HBM namely one called XMC um that should be restricted from US and allied tools. We should have countrywide restrictions on any tools that are particularly necessary for high bandwidth memory production of which there is a a list of those tools um that I know our colleagues in the government have too that we could work with you on. Those should all be restricted countrywide.
▶ 1:23:22I completely agree that this is a really important choke point and if we squeeze it even if China can make a bunch of logic dieseS they will tr struggle to make large numbers of uh AI chips because they will not be able to couple the die with the memory. That was the conclusion of the semi- analysis report and I completely agree with it.
▶ 1:23:38And what what happens if the CCP is unable to get their equipment serviced by major American Dutch Japanese companies and its tools uh break down over time without specialized servicing as well.
▶ 1:23:50This is very important um particularly for lithography tools. So so these tools semiconductor manufacturing tools need constant maintenance as we were saying as all of us have noted these are the most complex tools in the world. They constantly require little tweaking or part, you know, individual subcomponents fail, they need to be removed, have new ones put in. Particularly for the lithography tools, the really complicated ones. The ability to maintain and service these tools is itself extremely specialized. Only ASML can do it. Nobody can operate or run these tools without ASML.
▶ 1:24:19ASML provides on-site support to make sure that they keep operating. If ASML did not provide that on-site support, the tools would likely break down and degrade. China cannot provide that servicing uh themselves. They know it and we have the United States has restricted US companies from providing that on-site servicing at Advanced Chinese Fabs. The Dutch have not done that for ASML or they have in very limited ways. This is a key gap that we need to close.
▶ 1:24:45And I think that's ultimately one of those questions. How do how do we stop our US allies from servicing that equipment that's already in China? So,
▶ 1:24:52and I think there are ways that we can do this with extr territorial US controls. the Dutch might not like it, but there are ways that I outlined in my testimony that we can make this subject to US jurisdiction and stop it
▶ 1:25:04Looking forward to exploring that more. With that, uh, the ranking members
▶ 1:25:08Thank you, Mr. Chair. And I too want to return back to uh my final comments, especially on uh the Saudi deal because it is a serious issue. The administration green lit 35,000 Blackwell chips to uh Saudi Arabia. Maybe not hundreds of thousands, but I think 35,000 is still significant. And Saudi Arabia is the same country of origin to 15 of the 19 terrorists who attacked the United States on 911.
▶ 1:25:36And I have to add that the Saudi sovereign wealth fund backing the AI company receiving the chips is also in business with Jared Kushner's private equity fund for a $55 billion buyout of a gaming company. And this deal went through without Congress having any daylight into it. And because of that, one could postulate that it went through with regardless of any national security concerns. And I don't think that's a sentence anyone wants to ever have to say.
▶ 1:26:05And now we're asking who does the deal benefit. And I think that is a serious issue uh and one we shouldn't ignore. So Mr. Wolf, you discussed loopholes in your testimony and in some of your subsequent comments. Can the administration right now or at any time unilaterally close these loopholes?
▶ 1:26:27Um it's difficult uh to the extent that a foreign company uses US technology software or equipment to make what they make in whatever area. Uh there is an ability to assert extr territorial jurisdiction. The difficulty with that is that it is short-lived in that companies then design out US technology, US equipment, and US components, and then we have no longer the ability to assert our authority to stop a foreign company doing whatever you're
▶ 1:26:55It does sound like whack-a-ole, but um it is a tool that can be used by the
▶ 1:27:01I'm not disagreeing. I'm only saying that it has limited durability.
▶ 1:27:04Absolutely. So short-term, long-term um tools should be discovered, employed, tested, etc. Correct.
▶ 1:27:11And at the end of the day, this is an administration, any administration has levers. The question is how do you use them? How often? How do you change them to continue to make them effective?
▶ 1:27:20Absolutely. That's why I list the various carrots, the various sticks, the appeals to common interests, the use of new plural regimes, the leveling up US licensing policy. In the meantime, it's a very complex issue, but you're hitting on all the right topics.
▶ 1:27:33Yes. Lots of carrots, lots of sticks. So, I recently introduced the bipartisan export controls enforcement act, which would increase the very small number of export control officers stationed overseas to conduct enduse checks of controlled items. So, Mr. Wolf, this one is also for you. Are 11 ECO uh ECOs globally enough to monitor and check the billions of dollars of licensed commerce BIS approves?
▶ 1:27:58Absolutely not. And again, we could add a 100 ECOs, but it would still pale in comparison to getting the benefit of allies working with this. What we saw with, for example, the US and 38 countries coming together in response to the Russia response, they've all imposed their own same controls together equally and the ability to regulate and enforce that even with all the weaknesses and the gaps and the diversions that are occurring is far more extensive than if the US had done that alone using its extr territorial authority to try to enforce the same.
▶ 1:28:26So I I sort of call for that same sort of ambition with respect to identifying with the allies a common threat with respect to Chinese issues as in a much easier case I admit uh was the case in response to the Russian invasion of Ukraine.
▶ 1:28:39So many of us have asked about the entity list um and under the Biden administration there was an expansive export controls on the PRC and Russia uh which went further than any previous administration. built coalition uh with 38 other nations to impose crippling controls on Russia and Barus and imposed unprecedented export controls to restrict the PRC from obtaining advanced computing chips, developing and maintaining supercomputers and manufacturing advanced semiconductors.
▶ 1:29:09So, I'm actually worried that our export controls are atrophying without regular entity list updates to capture uh evasion. Mr. Wolf, do you think that the list is being updated uh with enough regularity to capture evasion by Russia or Chinese bad actors?
▶ 1:29:26It always requires constant revision for the points mentioned. As new companies are created, there are diversion risk created and the government is actually in a much better position to do that than industry trying to sleuth through records of who owns whom and and so this is where a resource topic should go. Who are the companies involved whether they're affiliated or not?
▶ 1:29:44whether they're across the street or have a corporate relationship involved in the diversion, uh massive amounts of resources are needed to keep companies on the list or add them to or to remove them off once they're no longer a threat or involved in the bad activity. And there aren't enough resources to keep the list pruned and updated that you're referring to.
▶ 1:30:01Great. Thank you again. Thank you to all of the witnesses and thank you to the chair um for hosting this hearing because I think you see there's bipartisan concern um and an interest to help rectify some of these challenges.
▶ 1:30:15You're welcome. Uh with that gentleman from Indiana is recognized for five
▶ 1:30:20Mr. Mr. Chairman, I appreciate this second bite of the apple. And in the uh the vein of bipartisanship, I'm would just note that I'm uh happy to be uh on the act that the ranking member spoke of. Certainly has the support of many of us. Um if I could u just uh dive a bit deeper into some of your testimony earlier, Mr. Maguire.
▶ 1:30:42Um yeah, you uh you spoke about the u the foundational chips and so much of our time has been focused on the PRC specifically but uh closing these export control gaps is not just to be focused on China but Chinese foundational chips are enabling uh both Russian for example and Iranian uh China's mass scale um micro electronics um sales to the Russian defense industry has allowed allowed President
▶ 1:31:12Putin uh to not only stay in the game uh in the Ukraine, but uh in in material ways continue to prosecute that war far longer than many thought uh they would be able to back in 22. Uh Chinese chips were found in the Iranian Shahed uh drones. Mr. Maguire, what does all this mean uh about the threats posh posed by the foundational or legacy uh semiconductors?
▶ 1:31:40What should the US do or be doing uh about China's ambition with these chips?
▶ 1:31:47Yeah, thank you for raising this. I think that there's really two threats from the the legacy chip um questions. One is what you outlined that these chips do still have military capabilities. We talk about advanced chips as having the kind of the ones that are most critical to national security, but many of the chips that are found in our uh many of our military systems and then many of the ones that we're seeing abroad are actually these these um legacy foundational chips. Um so that's number one.
▶ 1:32:10Number two is is the risk that actually China not only wants to have this capacity but they actually want to dominate this capacity globally which poses those strategic risk and also supply chain risks that are are really significant. And this is because it takes a long time to build a fab. We can actually see this happening in slow motion. But everyone knows it's happening. Everyone knows that the chi you 60% of the legacy fabs that were built out in the entire world over the last two years were built in China.
▶ 1:32:36China's legacy chip capacity I think is going from was 34% in 2023 and 2027 it's going to go to 47%. Ours is at 4%. So it's it's they're they're trying to move all they're trying to not only um kind of use this capacity to further their national security but also dominate the market and then once they do that they will follow the same playbook that they have over and over. they will undercut US firms, push push other uh US and allied firms out of the market and then get that market share up to the 80 90% at which point um everyone is relying on them.
▶ 1:33:06The that is an unacceptable risk. I think there's a bipartisan agreement on that and there hasn't been agreement on what to do about it. We could do all sorts of other things about how to prevent Chinese legacy chips from coming into the US market. But if we want to constrain the growth because we think that it is unacceptable for China to have such a large legacy chip industry, the only way to do that is with controls on semiconductor manufacturing
▶ 1:33:30I appreciate that. Um we Mr. Chairman, we just can't afford a system where China moves faster uh than we can to enforce. And so Mr. Wolf, I I hope BIS is successful in becoming one of the sexier places to work in government, especially if we may need hundred or hundreds more export control officers with that fairly exotic uh subject matter expertise uh that's needed in this space. So
▶ 1:33:57the the US is alone in having export enforcement in its export control agency and I think that's a critical advantage that we have over others given that they work with the subject matter experts and are be able to target that and not be distracted by other enforcement priorities. So um thank you for helping BIS in any way you can.
▶ 1:34:14Yes sir. Thank you. Thank you Mr. Chairman gentleman yields back and I want to say thank you to our uh to our witnesses for your extended period of time here and and uh the subcommittee may have some additional questions uh for the witnesses. We ask that you respond to those in writing through the chair and pursuant to committee rules all members may have five days to submit statements, questions and extraneous materials for the record subject to link limitations uh to through the chair and without objection the committee stands