Bureau of Industry and Security FY26 Budget: Export Controls and the AI Arms Race

Chairman Bill Huizenga (R-MI)SPEAKER_07

The Subcommittee on South and Central Asia will come to order, and the purpose of this hearing is to examine the fiscal year '26 president's budget request for the Bureau of Industry and Security. This hearing will serve as an opportunity for members to examine the Bureau of Industry and Security's critical and growing role in the U.S. ensuring that we win the AI arms race against the Chinese Communist Party.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

They're here for you.

Chairman Bill Huizenga (R-MI)SPEAKER_07

All right, today's hearing will examine the fiscal year 2026 budget request for the Bureau of Industry and Security, an agency whose mission is critical to ensuring America wins the AI arms race, a race against the Communist Party of China. We are at a historic inflection point. Technologies that will define the 21st century, such as AI, biotechnology, and quantum computing, are achieving breakthroughs that increasingly sound more like science fiction than the reality that we're used to. These technologies have the potential to unlock tremendous economic prosperity, medical innovations, and human flourishing. However, they are not just drivers of economic growth. They are instruments of military power and security as well. Advanced AI models could coordinate fleets of self-driving cars in Michigan. They could also direct autonomous drone swarms over the Taiwan Strait. The nation that leads in developing and deploying these technologies has an opportunity to gain geopolitical advantages for decades to come. The CCP, the CCP understands this. That's why it's trying to dominate these critical technologies by any means necessary: through state subsidies, forced tech transfers, economic espionage, chip smuggling, and exploiting access to the West's most innovative AI labs and universities. AI dominance is central to the CCP's goals. Its military modernization efforts, surveillance state, and human rights abuses are amplified by AI. Export controls play a crucial role in ensuring the U.S. and allied technologies are not— sorry, the U.S. and allied technologies are not used to fuel the CCP's pursuit of global dominance. Amongst its many important roles, BIS serves as a guardian of one of the world's most valuable and powerful supply chains, the ecosystem of advanced chips, tools, components, and design software that underpins the development of cutting-edge artificial intelligence. China's leading AI companies have made it clear just how dependent their future is on U.S. technology. In response to a question on what their biggest obstacle to AI development is, DeepSeek's CEO put it bluntly, quote, "Bans on shipments of advanced chips are the problem," close quote. The CCP understands the importance of these AI chokepoints. That's why it's working around the clock to to steal chips and exploit export control loopholes to internalize its production. That's why this hearing today is so important. BIS's fiscal '26 budget request includes a 133% increase in enforcement funding, a bold and necessary step. As the DeepSeek CEO made evident, it's not a lack of talent holding back China's AI development, it's the lack of access to U.S. technology. That's what this budget supports. It allows BIS to better disrupt covert efforts to funnel U.S. innovation to the CCP's military and surveillance state. So let's be very clear: enforcement is not about punishing innovation, it's about protecting it. It's about making sure that the technologies that define the future are not weaponized against our values, our alliances, or our own people. We also recognize that BIS operates in a dynamic and challenging environment. The technologies we're discussing are evolving rapidly rapidly. BIS must become faster, more adaptive, and and more technologically capable than ever before. This subcommittee is committed to giving the Bureau the tools and resources it needs to meet that challenge head-on. The geopolitical struggle between America and China defines the technologies of our time. Global AI development shaped by democratic values or authoritarian control will depend on the decisions we make right now about licensing, enforcement, and strategic technology protection. I'm pleased that we are joined by Under Secretary Jeffrey Kessler, who leads BIS during this decisive period in history. Mr. Kessler, thank you for your service and your appearance here at the subcommittee. The window for preserving America's technology edge is narrow, but it does remain open. BIS, with the support of Congress, must ensure America wins the AI arms race. Chair now recognizes the ranking member from California, Representative Kamlager-Dove, for any statement she may have.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Thank you, Mr. Chair, and thank you, Under Secretary Kessler, for being here today. It is mid-June, and you are the very first administration witness to testify before a House Foreign Affairs Committee this Congress. So I hope the rest of the administration can follow your example. Today, we will examine the fiscal year '26 budget request for BIS and discuss the role of export controls within the larger national security objective of ensuring U.S. leadership in the global AI race. I say U.S. leadership because California, my state, is the number one source of semiconductor manufacturing facilities and jobs in this country. These equities are very important to me and all of us. Over the past decade, export controls administered by BIS have become an increasingly divisive tool in U.S. foreign policy. Decisive. Today, BIS is responsible for restricting the PRC's access to the advanced AI semiconductor chips powering China's military and technological advancements. It is also tasked with enforcing an extensive multilateral export controls regime on Russia in response to its unprovoked invasion of a democratic Ukraine. Yet despite its centrality to two critical national security priorities, BIS's resources have not kept pace to meet the demands of its responsibilities. Since 2010, BIS's budget for core export control functions has remained relatively flat, while the number of license applications has nearly doubled, from 20,000 a year in 2012 to over 40,000 a year in 2024. I am glad to see the significant funding increase for BIS in the president's budget, which must also be accompanied by increased responsiveness to Congress and greater congressional oversight. These resources will help ensure that the export controls needed to prevent the PRC from accessing leading-edge chips and chip manufacturing equipment can be effectively enforced. However, I'm concerned that robust export controls cannot make up for the immense damage this administration is doing to America's competitiveness in AI. To win the AI race, we can't just slow China down. We have to simultaneously speed up and sustain our lead in cutting-edge technology. Yet Trump's budget would upend the federal R&D that is an essential enabler of the semiconductor technology pipeline. The president's budget slashes the National Science Foundation's research funding for microelectronics and semiconductors by 54%. NIST, which supports foundational research to commercialize new developments in semiconductor technology, would be cut by 28% after hundreds of employees working on semiconductor policies were DOGE'd. The Department of Energy's Office of Science, which supports national labs and the development of advanced manufacturing processes for semiconductors in the United States, is getting a 14% reduction. Not to mention the administration's culture war against universities and its draconian immigration policies, including the deployment of the National Guard in my home city of downtown LA right now, creating a perilous environment for the high-skilled foreign talent we are dependent on to make up the semiconductor workforce shortage. Trump doesn't need to force a repeal of the CHIPS Act, which has been essential to boosting domestic chip manufacturing, to hurt our advancements in AI. Turning back to BIS, I'm concerned that Trump is treating export controls as a bargain

The Honorable Jeffrey KesslerSPEAKER_02

to protect Americans from foreign adversary technologies that undermine national security. In March, the first major rule under the ICTS program came into effect, which will require a phase-out of foreign adversary-controlled software and hardware from passenger vehicles in the United States. And additional investigations and rulemakings are underway now. The 2026 President's budget builds on these tremendous accomplishments by requesting $303 million for BIS. This will represent the single largest investment in BIS history and one that will significantly bolster our ability to protect national security. An increase of this scale would enable BIS to significantly augment its enforcement capabilities. We would be able to hire almost 200 export enforcement special agents stationed across the United States who are responsible for apprehending and charging criminals who seek to profit by unlawfully transmitting American technology to our adversaries. And this increase would also enable BIS to more than double the number of what we call export control officers, ECOs, who are enforcement officials stationed overseas, from 12 at present to 30. These ECOs are critical for monitoring foreign entity compliance with U.S. export controls. A portion of the requested budget increase would also fund specialized engineers and technical experts who support BIS's enforcement efforts, for example, by determining whether a license was required for a particular export that has already taken place. These enforcement efforts are not only critical to protect national security, but they can also pay for themselves in penalty revenue that results from the enforcement actions. BIS has an outsized role to play in promoting national security and supporting the President's America First trade policy. The bureau's increased responsibilities in administering and enforcing export controls, including in maintaining America's technological leadership in critical and emerging technologies like AI, and investigating imports that threaten our national security, these tasks require commensurate resources. It's time for BIS to have the resources that it needs to do its job and keep America safe. The President's budget recognizes and enables this. Thank you, and I look forward to your questions.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Thank you, Mr. Kessler. I appreciate that. And I will now recognize myself for 5 minutes for some questions. Not sure, you may or may not actually be aware of this, but at 10:08, Commerce Department released a statement announcing Micron Technology is doing a $200 billion investment in memory chips here in the United States. And I know the ranking member has expressed some concern about where government funding has gone on technology and technology development and R&D. I would I would be remiss if I didn't point out that the one big beautiful bill reinstates R&D and allows the private sector to go do that. And in my mind, it has to be a partnership. We cannot just expect that the federal government is going to do much of this. So, I was proud to introduce the bipartisan CHIPS Security Act. Representative Foster and I, who we serve together on Financial Services as well, we worked on that, which would require location tracking on AI chip exports. Under Secretary Kessler, you are requesting 133% increase to BIS's enforcement budget, and you laid out that would allow you to double those— double the number of agents, I believe, that are looking at the enforcement. Are you seeing a large number of diversions of U.S. AI chips, and could location tracking potentially assist BIS in preventing diversions of these chips to China?

The Honorable Jeffrey KesslerSPEAKER_02

Thank you, Mr. Chairman. We do see significant efforts by wrongdoers to divert AI chips as well as other products that are export controlled. But we see those more commonly than you might expect. And we have enforcement operations that are active to address those types of activities. I'm concerned that we're not catching all of it, that there's a lot that goes undetected. Um, and this, um, this budget is intended to enable us to capture— to catch more of it and prevent more wrongdoing. Um,

Chairman Bill Huizenga (R-MI)SPEAKER_07

there, there are some that deny that this smuggling is happening at all.

The Honorable Jeffrey KesslerSPEAKER_02

It's happening. It's just a— it's a fact.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Unequivocally, right? Yeah. Okay. That seems a reality that some are, for whatever reason, are choosing to try to ignore. So, okay, well, yesterday, President Trump announced a successful deal with China to restore rare earth minerals access to the United States. And we haven't seen necessarily all the details of that. We know there's been plenty of hardball negotiations that have been going back and forth. Michigan, my home state, proudly serves as the home of American car manufacturing, so I know firsthand how dangerous China's weaponization of rare earth supply chain is to our economy. I was hearing that repeatedly from suppliers, as well as the the OEMs, the original equipment manufacturers. President Trump stated that in in in exchange for China restoring access, the U.S. would, quote, "provide to China what was agreed to, including Chinese students using our colleges," close quote. Can you share any of the details of the recent agreement, and were any U.S. export controls on China included as part of that deal?

The Honorable Jeffrey KesslerSPEAKER_02

The details are still to come and discussions are going on now between the governments, so I'm not going to comment on the content of those discussions. But look, the discussions were largely about the Geneva Agreement, making sure that China fulfilled its commitments from the Geneva Agreement, including the removal of non-tariff measures that it had imposed afterwards, such as those for rare earths. And it's such an important issue, as you know well and your constituents know well. Rare earths are a critical input for automotive supply chains, defense supply chains, other supply chains, and the administration has been committed, and we've been working very hard to make sure that those inputs continue to flow, that the industries and jobs that depend on them remain stable. That's what we're focused on.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Okay. Well, US export controls on China's AI capabilities are only effective if China is unable to produce an alternative technology stack at scale. Because of that, Chinese AI chips production capability is an important metric of success. Last week, Secretary Lutnick disclosed that China's AI chip production capacity is, quote, closer to 200,000 AI chips. Is that the formal position of the US government, and is that their assessment? What does that mean? And does that mean 200,000 Huawei 910Bs, 910Cs, or all Chinese AI chips? Can you shed some light on that?

The Honorable Jeffrey KesslerSPEAKER_02

So, our assessment is that Huawei's Ascend chip production capacity for 2025 will be at or below 200,000,

SPEAKER_UNKNOWN

And

The Honorable Jeffrey KesslerSPEAKER_02

project that most or all of that will be delivered to companies within China. China is investing— I think it's important to say we shouldn't take too much comfort from that fact. China is investing huge amounts to increase its AI chip production as well as the capabilities of the chips that it produces. So it's critical for us not to have a false sense of security, to understand that China is catching up quickly. But that is our that is our projection for this year.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Okay, my time has expired. Uh, the, uh, ranking member is recognized for 5 minutes.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Thank you, Mr. Chair. And actually, thank you for sharing that announcement. You referenced the Commerce announcement of the $200 billion deal, and the majority of that money is because of the CHIPS Act. So let's give some credit to Joe Biden. That is a big deal. So, Mr. Kessler, as you know, enforcing export controls on Russia for its invasion of Ukraine requires constantly updating the Entity List to account for front companies and subsidiaries that pop up to circumvent the controls. And so I'm In your testimony, you stated that you all have added 80 countries to the Entity List. But in the nearly 6 months since President Trump took office, BIS has not added a single company to the Entity List in relation to Russia's war on Ukraine, effectively allowing our controls to deteriorate. So, is that true that there have been no companies added to the Entity List that have been in relationship to Russia's war on Ukraine?

The Honorable Jeffrey KesslerSPEAKER_02

Well, we have continued to enforce all the export controls that we have in place, including those with respect to Russia. There are— there have been enforcement actions since I've been in office that addressed Russian parties. So,

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

but I

The Honorable Jeffrey KesslerSPEAKER_02

don't think it's correct.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Enforcing is not updating. So I'm asking about updating the entity list.

The Honorable Jeffrey KesslerSPEAKER_02

If we identify Russian parties that we believe should be added to the Entity List, we would do that.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

So, the reason why I'm asking is because putting restrictions on American companies without getting national security outcomes you desire doesn't seem to me to be a strong policy. And the outcomes that I would think we desire would be to block evasion of controls and stop the shipment of dual-use items to Russia. So, I'm just asking—I would like to ask you if you would commit to restarting a regular cadence of Entity List actions against entities supporting the Russian war machine.

The Honorable Jeffrey KesslerSPEAKER_02

Well, there hasn't been any pause. So when we identify entities that we believe should be added to the entity list, and there's a formal process for gathering intelligence and for coordinating with interagency partners to determine which entities those are. If we determine a party should be added and it's Russian, then we would do that.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Well, so that, you know, Secretary Rubio actually came before the full committee to talk about many things, and he did testify to the fact before our committee that, in fact, Russia was the aggressor in the war with Ukraine. So do you disagree or agree with Secretary Rubio that Russia started the current war in Ukraine and is the aggressor in this conflict?

The Honorable Jeffrey KesslerSPEAKER_02

I absolutely agree with Secretary Rubio's assessment of the war in Ukraine and defer to the State Department and Secretary Rubio on foreign policy in general.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Great. Well, I'm I'm so glad to hear you say that because I would hope that we would all be on the same page about making sure that we are blocking Russia's ability to smuggle these kinds of chips and equities and assets that are so important to us and our allies. And we also know that Russia is working with China. So when we're talking about the PRC, we should be adding Russia to that list as well. So I'd like to now move on to the Gulf AI chip deal in the few minutes that I have left. So Secretary Kessler, as part of the AI deals that were announced last month, did the governments of UAE and Saudi Arabia sign any security agreements to protect U.S. technology from being diverted to or remotely accessed by Chinese entities?

The Honorable Jeffrey KesslerSPEAKER_02

Well, what I can say is that the governments that we made deals with are very much aware of the security requirements that we have when we export AI chips. Those have been a topic of discussion, and we've made no secret of the fact that, for any chips to be exported, any of the chips that they're interested in getting, BIS approval would be needed. And what we look at when we authorize or not exports like that, what we look at is whether the chips are going to be secure when they're deployed overseas.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

So I would think that it would be just a simple answer. Yes, we are going to do everything we can to protect U.S. technology and keep it safe. Well, that's correct. Thank you. I yield back.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Gentlelady yields back. With that, the representative from New Jersey, Mr. Kean, is recognized for 5 minutes.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you, Mr. Chairman, and thank you, Under Secretary Kessler, for being here today. As the world becomes increasingly digital, the potential of technological warfare has become an increasing concern. It is important that our export control regime support American businesses while preserving American security in both physical and in digital realms. Under Secretary Kessler, BIS recently imposed license requirements on the export of certain AI inference chips, such as NVIDIA H20, to PRC. How is BIS viewing the overall export of AI chips to China, and how are you considering factors like the evolution of PRC domestic capabilities and more advanced U.S. chips entering the market?

The Honorable Jeffrey KesslerSPEAKER_02

Well, thank you for the question. We have robust— BIS maintains robust controls on the flow of AI technology to China. They are extensive. They apply to semiconductors, and to semiconductor manufacturing equipment, and to software related to manufacturing semiconductors, and all parts of the semiconductor supply chain. So we have a robust set of rules that controls this type of technology and prevents it from flowing to China and to certain other countries as well. From time to time, we need to update these rules because— pardon me— because the technology evolves, and we need to make sure that our rules keep pace with the technology. So when we take an action like the one that you described, it's to make sure that the most sensitive technologies don't fall into the hands of our adversaries.

Rep. Thomas Kean (R-NJ)SPEAKER_09

And what can we do as Congress to work with BIS to strengthen our export control regime?

The Honorable Jeffrey KesslerSPEAKER_02

I appreciate the question. I think the first thing would be to give BIS the resources that the president's budget requests. I think it's important for the world to understand that Congress stands with BIS in ensuring that our rules are strongly enforced, that they remain robust. And I think it's important for our foreign partners and allies to know that Congress expects them to align with U.S. export controls. One issue that we encounter frequently in export controls, and that is recognized in ECRA, in the statute that establishes export controls, one of the issues is that, in order to be effective, export controls need to be coordinated with other countries. We can't have a situation where other countries undermine U.S. export controls by backfilling. And again, I think it's important for American allies and partners around the world to understand that Congress recognizes this problem and expects them to stand with the United States when we impose our own export controls.

Rep. Thomas Kean (R-NJ)SPEAKER_09

And Under Secretary Kessler, undersea cable infrastructure carries over 95% of the world's internet traffic, yet many of the components and support technologies remain available to foreign adversaries. Earlier this year, I introduced the Undersea Cable Control Act, which calls for a strategy to prevent our adversaries from acquiring technologies critical to global cable networks. What role can BIS play in identifying and controlling exports of sensitive cable-related technologies to ensure that our communications networks are not compromised by hostile cyber actors?

The Honorable Jeffrey KesslerSPEAKER_02

Well, I think that's an important area to look at, and I'd be happy to work with you on that. I think we have a number of tools at our disposal, including export controls and potentially including the ICTS authority that I mentioned. So look forward to talking to you more about that.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. And the Foreign Direct Product Rule was designed to close export control loopholes, but key allies like Netherlands and Japan have not fully aligned their controls, allowing adversaries to access semiconductor tools with potential cyber and military applications. How is BIS engaging with international partners to ensure that multilateral export controls are harmonized and our adversaries cannot exploit allied markets to undermine U.S. cybersecurity and export enforcement?

The Honorable Jeffrey KesslerSPEAKER_02

Well, we— and I personally have been engaging with foreign governments to stress that point. So I want to assure you that we're very focused on that issue and we take it very seriously. It's critical for U.S. export controls to be effective, to have governments like the ones that you mentioned on board with U.S. controls.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. I yield back.

Chairman Bill Huizenga (R-MI)SPEAKER_07

gentleman's time has expired. The gentleman from California, Mr. Bera, is recognized for 5 minutes.

Rep. Ami Bera (D-CA)SPEAKER_04

Thank you, Mr. Chairman. Under Secretary Kessler, I'm going to follow on a line of questioning that the chairman started. I think last week, in response to Senator Coons' question, Secretary Lutnick said that China is only capable of producing about 200,000 of the advanced chips annually. I think you just confirmed that, maybe said it might be even a little bit less than that. And that's a surprisingly small number compared to—now, you also touched on we shouldn't rest on our laurels and so forth. I think you also indicated that right now those chips are for domestic consumption in China and production. Let me ask this question: How is China closing the gap with us? And then what can we do, working with BIS, to slow that gap closure down?

The Honorable Jeffrey KesslerSPEAKER_02

Well, thanks. I appreciate the question. So, yes, as you said, we shouldn't take too much comfort in the fact that China's production of these advanced chips is relatively small, because we know they have global ambitions. China wants to dominate the global supply chain in semiconductors, and it's had plans to achieve that goal for more than a decade. And it's consistently executing on those plans. Look, I think there are two parts. One is we need to do what the president just did in the Middle East and ensure that American technology can become the foundation for AI infrastructure around the world, because that closes it closes out market space for others that would supplant us otherwise. So I think that's an important component, and deals like the ones that the president just concluded in the Middle East will help cement America's primacy in this area. I think the controls are the other piece. We need to ensure that American technology doesn't become sort of an input, an element of the technological advancement that companies like Huawei or others that are controlled by our adversaries have. With those two pieces together, I think we can ensure that our lead over rivals remains as big as possible.

Rep. Ami Bera (D-CA)SPEAKER_04

Let me continue on that line of questioning. One of the rationales for the Gulf deal was that if we don't do it, Huawei or others would do this and help the Gulf states build this infrastructure. Obviously, based on our conversation right now, they're not capable of doing that at this particular moment in time. I think there are legitimate concerns, I think on both sides of the aisle here, that as we provide some of our most advanced chips and technologies to the Gulf states, we do want to make sure that they're very secure. Bill Foster has talked to me a lot about the location tracking and inserting technologies that make sure those chips are not ending up in Beijing or somewhere else. If we do go down this path of working with the Gulf states, I do think it's going to be incredibly important that we do everything in a bipartisan way here in Congress, but working with BIS to protect those chips so we don't actually inadvertently give Huawei or the Chinese that ability to compete with us globally when they can't right now.

The Honorable Jeffrey KesslerSPEAKER_02

Yeah, Representative Bera, I agree with you. And I agree with you on all of that. I think it's critical that we make sure that the chips, when they go overseas, remain secure. And that's, that's our mission. That's what we're going to do.

Rep. Ami Bera (D-CA)SPEAKER_04

Great. Second line of questioning: I'm glad that you're increasing your workforce because I think these export controls, these regimes to, again, protect natural advantages in this global competition are going to be incredibly important. My understanding, though, is about one-third of your workforce and personnel were lost due to layoffs, early retirements, or resignations, and you've got an incredible workload. You have seven active Section 232 investigations and other things going on. Are you able at this particular moment in time to meet these critical responsibilities given what you've lost in terms of infrastructure and manpower?

The Honorable Jeffrey KesslerSPEAKER_02

Well, yeah, I believe the number of people that we've lost is smaller than that, but yes, I do think we have the resources that we need to continue to function. I think we could do a lot more with the additional resources that we're requesting. You know, as I said, I'm concerned that although we're catching wrongdoers, our enforcement operation is robust, I'm concerned that many instances of wrongdoing go undetected, and that's what the budget request is about.

Rep. Ami Bera (D-CA)SPEAKER_04

Great, thank you.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Gentleman's time has expired. The Congressman Self, our subcommittee chair of Europe, is recognized now for 5 minutes.

Rep. Keith Self (R-TX)SPEAKER_06

Thank you, Mr. Chairman, and thank you, Under Secretary, for being here today. I want to highlight a growing concern. We know that China cheats. The People's Republic of China is increasingly bypassing our export controls through complex corporate structures. Right now, BIS's hands are tied when it comes to preventing our most sensitive technologies from falling into the hands of our adversaries. And we're seeing PRC-linked companies, institutions, and military end users establish subsidiaries, often shell companies, to evade our restrictions. That's why I'm introducing the STOP SHELLS Act to close this subsidiary loophole, which means if a subsidiary is 50% owned or more by an Entity List or military end-user list entity, they would be— it would apply to them. Corporate due diligence firms have identified thousands of Chinese subsidiaries that are at least 50% owned by entities already on the Entity List. So, Mr. Secretary, do you agree that closing this loophole is crucial in preventing the PRC from circumventing our export controls? And further, would you agree that reinforced by a foreign direct product rule would meaningfully disrupt the CCP's acquisition of U.S. technologies? And third, is 50% the right number?

The Honorable Jeffrey KesslerSPEAKER_02

Well, thank you for the question. I would have to look at the details, especially with respect to your question about FDPR. I think, in principle, I do agree that there's a problem, the problem that you're describing, that the BIS restrictions list, the entity list, the military end-user lists only cover narrowly the company that's listed, and it does, it does create loopholes and make evasion and circumvention easier. So, I think that is something that's important for us to address, and I'd be happy to work with you on that.

Rep. Keith Self (R-TX)SPEAKER_06

Very good. So, BIS recently put out helpful guidance clarifying preexisting U.S. policy that certain Huawei chips were subject to U.S. export controls and require a license from BIS for export. Is BIS planning on issuing similar guidance for other Chinese products, such as semiconductor manufacturing equipment companies like Naura?

The Honorable Jeffrey KesslerSPEAKER_02

I don't think we have any plans like that at the moment, but I would certainly consider it. I'd be happy to talk to you and your office about it more.

Rep. Keith Self (R-TX)SPEAKER_06

Very good. I will submit that to you in writing as a question. Terrific. And lastly, I'd like for you to address— it seems to us that when we have lowered the threshold for a chip design, the companies, US companies to include, go just below the level. Would you address that for us, please?

The Honorable Jeffrey KesslerSPEAKER_02

Well, yes, I think, I think it's important for BIS to set the technical parameters of its controls with precision. And in a sense, I don't blame companies for for trying to continue shipping products to China that are not controlled. I think BIS should just make sure that the parameters are defined in a way that if countries do what's— if companies do what we say is lawful, it doesn't undermine American national security. And so I think that that's the main lesson for me. We need to make sure that where we draw the line is where we intend to draw the line and that the corporate community can live with that. Because we need to not only prevent technology from flowing to adversaries, but we also need to communicate effectively to to industry about what's permissible and what isn't.

Rep. Keith Self (R-TX)SPEAKER_06

If I can help, help you with a term: U.S. national interest. With that, Mr. Chairman, I yield back.

Chairman Bill Huizenga (R-MI)SPEAKER_07

gentleman will yield. Mr. Self, if the gentleman will yield to me.

Rep. Keith Self (R-TX)SPEAKER_06

I yielded back my time.

Chairman Bill Huizenga (R-MI)SPEAKER_07

All right, I'd like to I'd like to take the remaining moment just to have one clarification. You had said in discussion with the ranking member's questions about the Middle East deal, and I'm not trying to imply that this is what she was saying, I just want to make sure there's a clarification. There has not been a suspension of any sort of export controls with any of these agreements at this point. You Okay, you were just reinforcing that all of the export controls that are currently in place are are part of any agreement?

The Honorable Jeffrey KesslerSPEAKER_02

Correct. No, no export controls have been suspended at all.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Okay, great. Thank you.

The Honorable Jeffrey KesslerSPEAKER_02

I think I was trying to say the opposite, that, of course, when any chips go outside the United States, they must comply with export controls, whether it's to countries that we've done deals with or not.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Yeah Okay, all right. That time has expired now. So with that, the ranking member of the full committee, Mr. Meeks, is recognized for 5 minutes.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

Thank you. And I want to thank you, Chairman Huizenga and Ranking Member Kamlager-Dove, for organizing this meeting. And it's good to see you again, Under Secretary Kessler. I appreciate your being here to discuss the administration's budget request. But the problem I have, because I just find it difficult to have a credible hearing about BIS and its budget when the committee hasn't seen any detailed plans about the president's budget request for the agency. So we've received the congressional budget justification from State, but not from Commerce. So my question is, when will the Commerce Department's congressional budget justification be provided to Congress?

The Honorable Jeffrey KesslerSPEAKER_02

Representative Meeks, it's good to see you again as well. Um, I enjoyed meeting with you, uh, a few weeks ago and, um, look forward to remaining in close touch.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

Likewise.

The Honorable Jeffrey KesslerSPEAKER_02

And all the budget documents, my understanding is the Commerce Department has provided them. If there's something that still needs to be provided, I'll just take that back and be happy to follow up with you.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

Yeah, I Surely, we have not seen the the budget justification, so I don't know. It's hard to have this conversation when we have not seen that. So I would hope that you could follow up, and we'll make sure, if you want, we'll send you another letter just requesting exactly what we what we need, okay? Secondly, in the last few weeks, BIS has suspended licenses for several companies, imposed new restrictions on chips and electronic design automation, EDA, tools, and rescinded the Biden administration's AI diffusion rule, which established a global regime for the export of our most advanced AI chips and technologies. So my question is, can you tell me about the decision-making process surrounding these actions and your role in making them?

The Honorable Jeffrey KesslerSPEAKER_02

The diffusion rule was very problematic. The diffusion rule was something that the Biden administration did in its final hours before leaving office. It was hastily constructed. It established a regime, a worldwide regime for controlling chips that was bureaucratic, heavy-handed. It drew arbitrary distinctions between different countries, said some are favored and some are less favored. It offended many of our partners and allies. It was not ready for primetime. And I think, frankly, even even members of the former administration might admit that to you in private. So that's why we rescinded that rule. It is not suitable for actually being put into practice, and we did that before the rule became effective because we didn't want to disrupt global markets in these critical technologies. As for the other steps that you mentioned, BIS is reviewing products of strategic significance across the board. We want to make sure that we don't unintentionally allow products and software and technologies that are important, that have a national security significance, to flow to our adversaries.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

So what I'm trying to find out is, um, has every single license Uh, that you have suspended gone through full interagency and White House approval?

The Honorable Jeffrey KesslerSPEAKER_02

Um, there is an interagency process, uh, for handling actions related to licenses, and we adhere to that process.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

So I think

The Honorable Jeffrey KesslerSPEAKER_02

that's set out by executive order. And

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

so those licenses that were suspended has gone through full— I know it's set up. My question is, did those companies that were suspended, did in fact, assuming that you were involved, they went through the full interagency and White House approval process as set up?

The Honorable Jeffrey KesslerSPEAKER_02

In any case where that interagency process has to be followed, we have, we have done it. So, for example, to issue a new license, to make a decision about an emergency authorization request, there are certain types of actions with respect to licenses where BIS is required to adhere to this interagency process, and we consult with our partners at the Departments of State and Energy and Defense. We follow that process.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

seconds I have left. Are you planning any additional actions on the U.S. semiconductor industries as it relates to China?

SPEAKER_UNKNOWN

Um,

The Honorable Jeffrey KesslerSPEAKER_02

I'm sure that we will remain active in that space. I mean, this is a constant— it's a constantly evolving landscape, and we need to make sure that our controls remain effective. So

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

are you planning anything immediately?

The Honorable Jeffrey KesslerSPEAKER_02

I don't have— no, I'm not planning anything immediately.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

So there's no nothing planned additionally right now as it applies to China, not immediately?

The Honorable Jeffrey KesslerSPEAKER_02

Correct.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

Correct. Thank you. You're back.

Chairman Bill Huizenga (R-MI)SPEAKER_07

Gentleman's time has expired. With that, the representative from Indiana, Mr. Shreve, is recognized for 5 minutes.

Rep. Jefferson Shreve (R-IN)SPEAKER_08

Thank you, Mr. Chairman. BIS's enforcement capacity remains structurally constrained by limited personnel. The Bureau maintains only a dozen overseas export control officers. They're responsible for conducting in-person end-use checks on thousands of export transactions annually. There have been delays in addressing emerging technologies, certainly including the fast-moving areas of AI, quantum computing, synthetic biology. And as these global threats evolve, your Bureau must be able to compete in the private marketplace and other government agencies for the talent needed to keep up with these threats. In coming weeks, I plan to introduce the BIS STRENGTH Act. It's legislation that'll prevent adversarial nations, certainly including China, from acquiring product that could boost their economic competitiveness in areas of concern, giving your bureau the hiring authority to bring leading technologists in for 1-year terms at market-competitive rates to craft smarter, faster policy. Mr. Kessler, I am not trying to lead the witness here, but do you believe that this flexible hiring authority could help BIS keep pace with innovation and anticipate, not just react to, the emerging national security threats from these emerging technologies?

The Honorable Jeffrey KesslerSPEAKER_02

It sounds very useful, I have to say. And some of the most talented people that I've worked with at BIS, particularly technical experts, have a strong industry background. Obviously, we need to understand—as an institution, we need to have a deep understanding of what industry is doing, what technologies are important. So, your proposal sounds very constructive, and I appreciate it.

Rep. Jefferson Shreve (R-IN)SPEAKER_08

Very good. Thank you. Mr. Chairman, I yield back.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. The chair now recognizes Congresswoman Johnson from Texas.

Rep. Julie Johnson (D-TX)SPEAKER_03

Thank you, Mr. Chairman. Under Secretary Kessler, I appreciate that you are taking time to be with us today so that we can hear from you directly. You are only the second Trump administration official to testify in front of this committee and actually the first to testify at the subcommittee level, so I'm pleased to see you here. As we see our adversaries take steps to work together, with Russia, China, and Iran financing each other, the Bureau of Industry and Security is one of our most important national security tools to ensure that we maintain our technological leadership and enforce export controls. But it is important that we—if we are to cut you a $311 million check, all while the Trump administration slashes all other agencies critical to our economic leadership, that we receive the final budget justification that you are obligated to provide Congress. And I want to echo Ranking Member Meeks concerns that we have not received that justification, which is unusual for you to come here and testify prior to us receiving the budget descriptions so that we can appropriately inquire about it. And I would ask that you please submit that at your earliest convenience. Instead, you are asking for a 50% increase without telling Congress about your AI enforcement strategy or plan. So what justifies this massive adjustment of increased funding for BIS, and what specific metrics for improvement are you committing to achieve with this additional funding?

The Honorable Jeffrey KesslerSPEAKER_02

Well, I, I think I am here to explain, uh, the plan for, for these additional resources. Um, look, we, we have a small, effective but small enforcement apparatus. We have, you know, around 200 people who are responsible for enforcement altogether. And that includes many frontline officers, people who are responsible for actually apprehending wrongdoers. It includes the 12 export control officers that I mentioned before, the officials who are stationed outside the United States. To make sure that foreign companies and countries are doing what they're supposed to do with our technology. But these numbers are vanishingly small for the types of products that we're talking about, right? We're an agency that handles, you know, something on the order of 10,000, 20,000 licenses per month. You know, we need more than just one officer per country in the world to enforce these rules effectively. And that's what this budget increase is about.

Rep. Julie Johnson (D-TX)SPEAKER_03

Mr. Chairman, at this time I'm going to yield the remainder of my time to Ranking Member Meeks.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

Thank you. I wanted to ask you one more question. This week your colleague from the National Economic Council, Director Kevin Hassett, told the media that scaling back U.S. export controls on China is on the table in the trade negotiations with China in London. And I'm deeply concerned about this administration mixing export controls, which require a national security justification, with trade negotiations. And so using export controls as a leverage in a trade negotiation, I believe, undermines the credibility of America's export control regime. So, can you elaborate and tell us which controls are on the table in your negotiations with the Chinese and why, and what controls are not on the table, and why?

The Honorable Jeffrey KesslerSPEAKER_02

I'm not going to comment on the contents of discussions between—diplomatic discussions between the United States and China, which are continuing. What I will say is that export controls have been strong, and I'm confident that they will remain strong in the future, including with respect to the AI technologies that we're talking about today and many other technologies of concern.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

Were you in the negotiations for the trade talks in London?

The Honorable Jeffrey KesslerSPEAKER_02

I was in London. I didn't participate in all the talks.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

But you participated in some of the talks?

The Honorable Jeffrey KesslerSPEAKER_02

Limited, in a limited set of them.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

You care to say which talks you participated in?

The Honorable Jeffrey KesslerSPEAKER_02

I'm not going to comment more on the contents of the discussions.

SPEAKER_UNKNOWN

Hmm.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

So as undersecretary, have you approved any export controls with the aim of bolstering the administration's leverage in ongoing trade negotiations?

The Honorable Jeffrey KesslerSPEAKER_02

I wouldn't— I wouldn't say that.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

So when

The Honorable Jeffrey KesslerSPEAKER_02

we impose controls, it's based on an assessment of what would promote national security and foreign policy interests of the United States, and that's what the statute requires. So that's the basis that that's the basis on which we apply.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

Well, you understand my concern. You were there, part of it, and that to me there's 2 separate—

The Honorable Jeffrey KesslerSPEAKER_02

Well, we—look, part of the discussion is, part of the concern is China's measures, including those related to rare earths, and those were styled as export controls.

Full Committee Ranking Member Gregory Meeks (D-NY)SPEAKER_00

I yield back to the gentlelady.

Rep. Julie Johnson (D-TX)SPEAKER_03

Oh, I think my— yeah, I think we're—

Rep. Thomas Kean (R-NJ)SPEAKER_09

and the congresswoman yields?

Rep. Julie Johnson (D-TX)SPEAKER_03

Yes, sir, I yield back.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. The chair now recognizes Representative Moylan for 5 minutes.

Rep. James Moylan (R-GU)SPEAKER_05

Thank you, Mr. Chairman. And as competition with China over cutting-edge technology dramatically intensifies, we can't overstate the importance of effective export controls. And the role of the Bureau of Industry and Security, BIS, in our national strategic strategy is even more critical than ever. Sir, you really could use our help in Congress, as you're stating, and I support that.

The Honorable Jeffrey KesslerSPEAKER_02

Thank you, sir.

Rep. James Moylan (R-GU)SPEAKER_05

You're welcome. Advanced semiconductors, quantum technology, artificial intelligence, and autonomous drones can be easily repurposed for military use by our adversaries. The range of products that require careful monitoring is highly diverse, and the supply chain for advanced technologies such as semiconductors is highly complex, involving numerous international stakeholders. This means it's nearly impossible for the US to unilaterally control the entire process, and multinational cooperation for effective export controls is critical. Now, the cooperation among the U among the US, Japan, and Netherlands on advanced semiconductors manufacturing equipment technology can serve as a good example. Now, when we think about effective export controls, we need to focus not only on which items should be regulated, but also on how these regulations are effectively implemented and monitored to achieve our intending goals. Several significant loopholes have been reported, such as acquisitions by obscure companies under the control of regulated Chinese entities and evasive imports through third countries. These examples illustrate the difficulty of ensuring workable enforcement of export controls. Nonetheless, we remain resolve in our commitment to provide you with effective policy tools and work together to secure national interests in the face of this critical competition. Sir, you have a heck of a job. So, Under Secretary, which area or items do we need to strengthen our international cooperation to deter our adversaries' technology advancements, and are you thinking of utilizing the Foreign Direct Product Rule to prevent foreign backfilling of US companies?

The Honorable Jeffrey KesslerSPEAKER_02

Well, thank you, Representative Moylan. I appreciate the question. I think it needs to start with some of the areas that you mentioned, particularly controls on semiconductors and semiconductor-related technology, semiconductor manufacturing equipment, software that relates to semiconductor manufacturing, and other AI-related technologies. We need to make sure that for all of these critical technologies, our allies are fully aligned. And I agree with you that there has been some progress, particularly with respect to the Netherlands and Japan, but it's incomplete. The task is incomplete, and more needs to be done. I would consider using the foreign direct product rule. I think it's an important tool in our toolkit to make sure that there isn't backfilling, as you said. I think the best approach when it's feasible is for foreign countries willingly, especially our allies and partners who share—after all, they share our security interests, and these controls are all about promoting national security. So the best outcome is when they willingly impose controls to achieve alignment with ours. But yes, where that's not possible, I think that we should consider the foreign direct product rule.

Rep. James Moylan (R-GU)SPEAKER_05

Thank you. And sir, what kind of authorities and new funding are necessary to implement more effective export controls?

The Honorable Jeffrey KesslerSPEAKER_02

Well, I think it's the funding that we're requesting in this budget, a significant increase in enforcement capacity. As I mentioned a moment ago, we have one, approximately one enforcement official per country in the world, and that's totally inadequate to the task that we're charged with. These are technologies that are critical to national security, they're incredibly valuable, and I think it makes sense for the United States to invest in protecting them.

Rep. James Moylan (R-GU)SPEAKER_05

Thank you for your efforts. I do hope, and I support you with your goals that you're requesting And thank you for your time and your expertise.

The Honorable Jeffrey KesslerSPEAKER_02

Thank you, sir.

Rep. James Moylan (R-GU)SPEAKER_05

Thank you, Mr. Chairman. I yield back.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. Uh, the gentleman yields. Uh, we're now going to have a second round of questions, and the first person will be asking those questions. Uh, Congresswoman Johnson, you're recognized for 5 minutes.

Rep. Julie Johnson (D-TX)SPEAKER_03

Thank you so much, Mr. Chairman. Um, I'm just going to pick up where I left off a little bit. Um, so one of the— you know, we've kind of been touching on this, but My question is very specific. One of the Bureau's core missions is international cooperation on issues from controlling the spread of dangerous goods and technologies to protecting critical infrastructure. As my colleagues have mentioned, especially with export controls, effective enforcement is often determined by international cooperation and coordinated efforts to harmonize U.S. laws with our trading partners. So I know you've increased— you've testified that you're having increased personnel. But are there any other aspects of how you intend to spend the $120 million budget increase that your agency is requesting other than on personnel specifically?

The Honorable Jeffrey KesslerSPEAKER_02

Well, I think it is mostly personnel. A portion of the budget may go to— I'd have to check, but I think a portion of the budget may go to equipment that enforcement officers need, bulletproof vests and cars, service cars that they use when they're doing enforcement operations, firearms, things like that. But I think most of it will be for personnel and things that the enforcement personnel need. And I guess I just want to register agreement with the first part of your question also about the importance of international cooperation. You know, as I mentioned a moment ago to Representative Moylan, it really is important to, well, preferably to get countries, foreign countries willingly to align with our export controls, and when that's not possible, to consider other options.

Rep. Julie Johnson (D-TX)SPEAKER_03

I want to completely change the topic for a moment and turn to an often overlooked issue that I'm very passionate about, which is just the intellectual brain drain that's happening in our country right now, and I think it's a a matter of our national security. I'm concerned that the U.S. is producing just the same number of electrical engineering graduates here in 2025 as we did in 2021, almost 25 years ago. This means that even if the administration is successful in reshoring chip manufacturing and regaining semiconductor leadership, there may not be sufficient workforce in place to sustain these efforts. As an agency within the Department of Commerce, the U.S. government agency charged with creating conditions for economic growth, promoting job creation, and attracting foreign direct investment, what is BIS doing to support growth of the engineering talent pipeline here in the United States so that we can remain to have a scientific, technological advantage?

The Honorable Jeffrey KesslerSPEAKER_02

Well, BIS's mission is to protect critical technologies and to protect critical supply chains. As a department and as an administration, ensuring that we have a sufficient flow of talent into our cutting-edge technologies and cutting-edge companies is absolutely a priority. And we have a range of initiatives across the government to ensure, for example, American dominance, continued dominance in AI and other scientific fields, and also to ensure a robust workforce at the technical level, trade schools, vocational training. So, I agree with you about the importance of that, and it's something that we are focused on as an administration.

Rep. Julie Johnson (D-TX)SPEAKER_03

Yeah, I have a lot of concerns about the attack on higher ed in this country, the war that the administration seems to be having with higher ed, and also on our immigration talent. We have scientists who have been—who's had their funding cut off for their research, and then China has come in and offered them all the funding in the world to continue to lure them away, since the United States is, with the cuts across other disciplines in this government—it's harming our research, it's harming our development. Have you expressed concerns within the administration that some of these other efforts are counterproductive to the work that you're trying to achieve?

The Honorable Jeffrey KesslerSPEAKER_02

No, not at all, and I don't see anything counterproductive.

Rep. Julie Johnson (D-TX)SPEAKER_03

Well, I completely disagree with that because I do believe it's counterproductive when the United States has invested significant sums of research— of resources to educate foreign talent at our universities, to put them in labs, to put them in research, to pay for their research, to then unilaterally cut it off after decades of progress and Nobel Prize-winning efforts and, and the like, only to be recruited by China and some of the, the very countries that we're in this discussion to keep a competitive advantage. It certainly isn't helpful at all. And I would suggest that you take a look at that, because if we don't have the talent in this country to continue to develop and research and push our technologies forward, we will be behind in this effort. None of these export controls are going to even matter. And with that, I yield back. Thank you.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. The congresswoman yields. I now recognize myself for 5 minutes. There are serious concerns that SMIC is violating U.S. export controls in its production of advanced AI chips for Huawei. Will you commit to utilizing the increased enforcement budget to thoroughly investigating SMIC and finally determining SMIC's compliance with U.S. export controls?

The Honorable Jeffrey KesslerSPEAKER_02

If we believe there's a violation happening, we will absolutely investigate it. And if you have information about any particular company that's violating export controls now, we would absolutely investigate it, especially that one.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. Um,

The Honorable Jeffrey KesslerSPEAKER_02

doesn't have to wait even for the, for the additional appropriations. I mean, any, any— and I think that goes for, for everybody, you know, if there's ever any violation that you think may be happening, we would want to know that immediately.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Okay Our export controls require robust enforcement, but they also frequently require timely administration. The Export Control Reform Act requires BIS to process licenses within 30 days of receiving an application. What efforts is BIS taking to meet that goal?

The Honorable Jeffrey KesslerSPEAKER_02

Well, we have a significant staff in the part of BIS called Export Administration that's devoted to processing license applications. And so that's how we try to ensure that licenses are processed in a timely way.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. And how is BIS leveraging global demand for U.S. technology to convince other countries to assist in enforcing U.S. export controls and preventing illegal diversions?

The Honorable Jeffrey KesslerSPEAKER_02

Well, yeah, I'm not sure I would frame it exactly that way. My view is that it's positive when U.S. technology is used as the basis, as the foundation for technology infrastructure around the world, because there are alternatives, and we would rather have foreign countries choosing U.S. technology rather than others. I see the role of export controls as making sure that when that happens, it's done in a secure way, in a way that ensures that the technology remains in the hands of the United States and our partners and allies and not in the hands of our adversaries.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. That completes my final round of questions. I now recognize the congressman from Texas for his second round of questions.

Rep. Keith Self (R-TX)SPEAKER_06

Thank you, Mr. Chairman. So, I want to explore our export controls almost in general because your answer to my first round of questions was was interesting. So, do you believe our export controls on advanced semiconductors, those most important related technologies, are effectively curbing the PRC's access to militarily significant chip capabilities?

The Honorable Jeffrey KesslerSPEAKER_02

I do. I do. I think, and Chairman Huizenga mentioned in his opening remarks, that there are PRC company officials who have acknowledged that U.S. export controls are a significant impediment to their to their own companies' development.

Rep. Keith Self (R-TX)SPEAKER_06

And how aggressively could BIS leverage the Foreign Direct Product Rule to restrict China's access to advanced chips, particularly when foreign labs are producing these same items using our technology?

The Honorable Jeffrey KesslerSPEAKER_02

BIS has the ability to impose the Foreign Direct Product Rule, particularly with respect to semiconductor-related technologies. So the FDPR doesn't apply equally across technology areas, but in the area of semiconductors, it's it's fairly strong. So we have a lot of flexibility to be aggressive.

Rep. Keith Self (R-TX)SPEAKER_06

So what legislative authority would strengthen your hand?

The Honorable Jeffrey KesslerSPEAKER_02

Well, I would— rather than commenting on that here, let me just suggest that we have a separate conversation about how that might be I think there are ways that Congress could help strengthen BIS's authority in this area.

Rep. Keith Self (R-TX)SPEAKER_06

I look forward to that conversation. And to what extent are our efforts undermined by our allies' export controls, particularly countries like Netherlands, Japan, South Korea? And what is your candid assessment of the multilateral export control success?

The Honorable Jeffrey KesslerSPEAKER_02

Well, that's a complicated question. I think there's a lot more to be done. As I said, I think there has been progress in achieving greater alignment between the United States and some of those countries, but it's incomplete, and it's incomplete in important ways. And the areas where we haven't yet achieved alignment, unfortunately, are enabling US adversaries to advance and cultivate their technology. We've sort of—the system, the regime that the United States and its partners and allies have set up has encouraged adversaries to find alternative pathways to acquire advanced technology, and they're very good at that. They're very good at finding ways around the rules, and that's happening. So I think it's a serious problem and one that, as I mentioned before, I think in response to another member's question, I've been very focused on personally. So I think there's a lot more to do there.

Rep. Keith Self (R-TX)SPEAKER_06

And I just want to emphasize on the Science, Space, and Technology Committee, we are starting to realize just how critical AI and quantum computing marriage could be. There are people that will tell you the first quantum computing computer, the first, will render our encryption obsolete. So this is a vital question, advanced semiconductors. This is absolutely critical to our national interest, our national security, and our national defense.

The Honorable Jeffrey KesslerSPEAKER_02

I fully agree.

Rep. Keith Self (R-TX)SPEAKER_06

Yeah, so this is, this is more important than just the Washington speak here. It's, it's, it's vital. With that, Mr. Chairman, I yield back.

Rep. Thomas Kean (R-NJ)SPEAKER_09

The gentleman from Texas yields. Representative Moylan is recognized for 5 minutes.

Rep. James Moylan (R-GU)SPEAKER_05

Thank you, Mr. Chairman. Now, last Congress, this committee uncovered that BIS was routinely approving licenses for some of the worst enablers of the CCP military modernization, human rights abuse, and surveillance state. For example, between November 2020 and April 2021, BIS approved $60 billion worth of licenses to Huawei and $40 billion worth of licenses for SMIC. In FY23, BIS only denied roughly 2% of all license applications it received. What actions, sir, are you taking to reassure Congress that additional funding will not simply be used to facilitate BIS's traditional rubber-stamp policies for CCP?

The Honorable Jeffrey KesslerSPEAKER_02

Let me be unequivocal. That has stopped and it will not resume.

Rep. James Moylan (R-GU)SPEAKER_05

Loud and clear. Thank you. And sir, what is your assessment of China's recent technological advancements, such as DeepSeek and Huawei launch of first laptops with self-developed computer operating systems? And do you believe that these developments indicate that we need more robust export controls?

The Honorable Jeffrey KesslerSPEAKER_02

I do. I think that it reveals several different areas where our export controls should be stronger, both on the hardware side and on the software side. I think, in practice, the hardware is easier to control. There was a lot of reporting after DeepSeek's January advancements about its use of certain chips made with U.S. technology for performing inference operations, and BIS has addressed that. But I think it does show that we need to constantly be vigilant about the potential use of U.S. technology for our adversaries and their companies to achieve advancements over us and to leapfrog us.

Rep. James Moylan (R-GU)SPEAKER_05

Very good. I trust that everything will go well under your leadership. Thank you so much. Thank you, Mr. Chairman. I yield back.

Rep. Thomas Kean (R-NJ)SPEAKER_09

The chairman— excuse me, the gentleman yields. Under Secretary Kessler, I am interested in hearing more about how you think that we should categorize AI when contemplating our export control strategy. Is it a general-purpose technology like electricity or steam engines, or is it more of a weapon? And so is it closer to an F-35 or a Boeing 737? And how should these analogies shape our export control strategy?

The Honorable Jeffrey KesslerSPEAKER_02

Well, all of the analogies have a degree of imprecision. Another one that I've heard used is civil nuclear technology, one that has enormous potential benefits to humanity, but that can be dangerous if it falls into the wrong hands, one that needs to be controlled carefully and monitored, especially when deployed overseas, but one that we should also promote and ensure United States continued leadership in. So, I think that it is an area that needs some degree of regulation, some degree of regulation particularly with respect to security. We need to make sure that when it's deployed in the United States or overseas, it's deployed in a secure way, one that is consistent with American interests. But it's also important not to regulate this to death. And I think that's the trap that, frankly, the Biden administration fell into with the AI diffusion rule that I was discussing a moment ago with another member. That was an example of command-and-control-style regulation of this dynamic and rapidly evolving technology area that would have just strangled it.

Rep. Thomas Kean (R-NJ)SPEAKER_09

And what specific areas of concern did you have regarding that structure?

The Honorable Jeffrey KesslerSPEAKER_02

Regarding the diffusion rule?

Rep. Thomas Kean (R-NJ)SPEAKER_09

Yes.

The Honorable Jeffrey KesslerSPEAKER_02

Well, I mean, they are almost too many to list. There were— there was a series of elaborate caps on computing power and the number of chips that companies could get depending, you know, per country and depending on the classification of that country. And it was just a very Byzantine set of rules, difficult to understand, much more difficult to comply with, and divorced from commercial reality.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Okay, thank you for that clarification. Congress has persistently raised issues with BIS's delays in identifying emerging and foundational technologies at BIS, as is required under the ECRA. BIS has effectively established a shadowy policy that will only recognize emerging and foundational technologies after working through the Wassenaar Arrangement. The statute clearly does not provide a Wassenaar exemption exemption to BIS's statutory responsibilities, and BIS delays directly affect CFIUS jurisdiction. Will you commit to ensuring that BIS follows the ECRA's mandate and ends its shadow Wassenaar requirements prior to identifying emerging and foundational

The Honorable Jeffrey KesslerSPEAKER_02

technologies? Yes, if that shadow policy exists, that's not one that I will honor. I agree with you that there's no requirement to perform some kind of multilateral box-checking exercise before recognizing and controlling foundational technologies.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. And then one more question for you, sir, for me. BIS has not fully replaced its IT infrastructure since 2008. The current IT systems present legitimate national security risks, as it hinders BIS's ability to conduct investigations, produce analyses, and process licenses in a timely manner. The One Big Beautiful Bill passed by the House included resources for Commerce to improve its IT infrastructure. Are the funds in the One Big Beautiful Bill sufficient for BIS to address its IT deficiencies?

The Honorable Jeffrey KesslerSPEAKER_02

I believe so. I believe so.

Rep. Thomas Kean (R-NJ)SPEAKER_09

And in which areas would you first focus utilizing those resources?

The Honorable Jeffrey KesslerSPEAKER_02

Well, we need to shore up the security first and foremost of BIS's IT. Unfortunately, much of BIS's IT system runs on a platform that's two decades old. So it needs to be updated and overhauled, and we need to focus especially on cybersecurity.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Okay. Thank you I yield to Representative Self.

Rep. Keith Self (R-TX)SPEAKER_06

Thank you, Mr. Chairman. So I think it's fair to say that not all of the people that can produce advanced chips hold our our position on China, that it is certainly a peer adversary. Are you prepared to recommend to the Secretary, to the Secretary of State, and to the President that if our export controls or our allies or other nations that are producing these chips continue to provide them to China, whether surreptitiously or openly, that other means might be necessary to curb the traffic of advanced chips into China? And I have no idea what that might be, what might be decided, but would you be willing to to advise the use of sanctions, of tariffs, whatever means outside of export controls to stop the flow of advanced chips into China?

The Honorable Jeffrey KesslerSPEAKER_02

I would. My view, as I believe yours is, is that these are national security priorities, and the United States should consider all options when advancing those priorities, and including, but not limited to, those that are in the export controls toolkit. But there are tools outside of that toolkit that we should consider as well.

Rep. Keith Self (R-TX)SPEAKER_06

Thank you for that answer, Mr. Secretary, and I yield back.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. Representative Self yields back. The chair now recognizes Representative Kamlager-Dove, ranking member of this committee, for 5 minutes of questions.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Thank you, Mr. Chair. And I'm so glad that we're still having these conversations. Great questions. Under Secretary, I wanted to go back to some of the earlier questions that I had asked you about the Gulf AI chip deals. And I know that you said earlier that it was your goal to make sure that our chips remain secure, and I think it's our intention to make sure that American countries and our allies around the world also feel like they are being taken care of and thought of by this administration. So we also do know that there are chips and entities that are getting smuggled into Russia or accessed remotely by China. So would you commit right now that no advanced US AI chips would be exported to the UAE or Saudi Arabia until those governments sign a binding security and monitoring agreement?

The Honorable Jeffrey KesslerSPEAKER_02

What I would commit to is ensuring that for any AI chip exports that require a license, we would ensure that rigorous security requirements are in place, and we would enforce those requirements.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

And so what does rigorous security requirements and enforcement look like and mean to you?

The Honorable Jeffrey KesslerSPEAKER_02

Among other things, it means that the, you know, if the chips are going to be deployed to a data center located overseas, we would want to make sure that the operator of the data center, that the cloud service provider, if it's being deployed as a cloud, that those companies are trusted, that they have demonstrated that they can fulfill rigorous security requirements, both with respect to who's who can access the computing power, and also physical security. It would also include the personnel that work at those facilities. It would include the companies deploying know-your-customer requirements to make sure that, you know, there are not shell companies illicitly diverting.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Right. And I don't want to I only have a few minutes, so I do not want to cut you off, but I'm glad you said that because we do know that, for example, Russia does participate in starting up shell companies so that they can evade the kinds of export controls that we have in place. You also mentioned license applications. And so segments of the U.S. industry have actually complained to members of Congress about significant delays when it comes to license reviews. And these delays have been so prolonged and pronounced that some companies are saying that there seems to be a deliberate pause. So have you ordered a pause or delay in review of license applications since you assumed your role at Commerce?

The Honorable Jeffrey KesslerSPEAKER_02

I have been carefully reviewing the licensing process. As another member mentioned, there has been a problem in the past with BIS rubber-stamping license applications, including, it appears, those that are for products that go to China, technologies that go to China and other adversaries. I view that as a problem, and when I came into office, I decided that one of the first things I would do would be to take a close look at the licensing process.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

I'm so glad— in

The Honorable Jeffrey KesslerSPEAKER_02

order to—

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

I'm glad that you are saying that because I do think that's important. I am also concerned when we hear from companies who say that it seems to be an excessive length of time for this review process, even though it is important that we carefully review. So, has there been an increase in the average time it takes BIS to get back to companies with license applications decisions?

The Honorable Jeffrey KesslerSPEAKER_02

I don't know, but I would, I would guess that there has been because I'm no longer rubber stamping applications.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

It would be helpful for us, I think, to get that information. I know the chair talked about what's happening in Michigan. I've talked about the companies that are in California. I'm sure that there are other members. I know Arizona is also a state that's deeply committed, interested in semiconductors and issues around export controls. So could you share that information with this committee about the length of time that it is taking to review these license applications and what your goal is in terms of decreasing the time it takes to review while you are still making sure that you are giving it careful consideration?

The Honorable Jeffrey KesslerSPEAKER_02

We can provide information about our licensing practices.

Ranking Member Sydney Kamlager-Dove (D-CA)SPEAKER_01

Thank you so much. And with that, I yield back.

Rep. Thomas Kean (R-NJ)SPEAKER_09

Thank you. The ranking member yields. Seeing no further questions, I want to thank Under Secretary Kessler for his valuable testimony and for the members for their questions. Members of the subcommittee may have some additional questions for the witness, and we will ask you to respond to them in writing. Pursuant to committee rules, all members may have up to 5 days to submit statements, questions, and extraneous materials for the record, subject to the length limitations. Without objection, the committee stands adjourned. Thank you.