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77–033PDF 2012

THE IMPACT OF INTERNATIONAL TECHNOLOGY 

TRANSFER ON AMERICAN RESEARCH 

AND DEVELOPMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS AND 

OVERSIGHT 

COMMITTEE ON SCIENCE, SPACE, AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

WEDNESDAY, DECEMBER 5, 2012 

Serial No. 112–109 

Printed for the use of the Committee on Science, Space, and Technology 

( 

Available via the World Wide Web: http://science.house.gov 
(II) 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. RALPH M. HALL, Texas, Chair 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

PAUL C. BROUN, Georgia 

SANDY ADAMS, Florida 

BENJAMIN QUAYLE, Arizona 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

E. SCOTT RIGELL, Virginia 

STEVEN M. PALAZZO, Mississippi 

MO BROOKS, Alabama 

ANDY HARRIS, Maryland 

RANDY HULTGREN, Illinois 

CHIP CRAVAACK, Minnesota 

LARRY BUCSHON, Indiana 

DAN BENISHEK, Michigan 

VACANCY 

EDDIE BERNICE JOHNSON, Texas 

JERRY F. COSTELLO, Illinois 

LYNN C. WOOLSEY, California 

ZOE LOFGREN, California 

BRAD MILLER, North Carolina 

DANIEL LIPINSKI, Illinois 

DONNA F. EDWARDS, Maryland 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

JERRY MCNERNEY, California 

TERRI A. SEWELL, Alabama 

FREDERICA S. WILSON, Florida 

HANSEN CLARKE, Michigan 

SUZANNE BONAMICI, Oregon 

VACANCY 

VACANCY 

VACANCY 

SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

HON. PAUL C. BROUN, Georgia, Chair 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

SANDY ADAMS, Florida 

RANDY HULTGREN, Illinois 

LARRY BUCSHON, Indiana 

DAN BENISHEK, Michigan 

VACANCY 

RALPH M. HALL, Texas 

PAUL D. TONKO, New York 

ZOE LOFGREN, California 

BRAD MILLER, North Carolina 

JERRY MCNERNEY, California 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

Wednesday, September 12, 2012 

Page 

Witness List ............................................................................................................. 2 

Hearing Charter ...................................................................................................... 3 

Opening Statements 

Statement by Representative Paul C. Broun, Chairman, Subcommittee on 

Investigations and Oversight, Committee on Science, Space, and Technology, U.S. House of Representatives ............................................................... 11 

Written Statement ............................................................................................ 12 

Statement by Representative Paul D. Tonko, Ranking Minority Member, Subcommittee on Investigations and Oversight, Committee on Science, Space, 

and Technology, U.S. House of Representatives ............................................... 13 

Written Statement ............................................................................................ 15 

Witnesses: 

Dr. Robert D. Atkinson, President, Information Technology & Innovation 

Foundation 

Oral Statement ................................................................................................. 16 

Written Statement ............................................................................................ 19 

The Honorable Dennis C. Shea, Chairman, U.S. China Economic and Security 

Review Commission 

Oral Statement ................................................................................................. 33 

Written Statement ............................................................................................ 35 

(1) 

THE IMPACT OF INTERNATIONAL 

TECHNOLOGY TRANSFER ON AMERICAN 

RESEARCH AND DEVELOPMENT 

WEDNESDAY, DECEMBER 5, 2012 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT, COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:09 a.m., in Room 

2318 of the Rayburn House Office Building, Hon. Paul C. Broun 

[Chairman of the Subcommittee] presiding. 
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Chairman BROUN. Good morning. The Subcommittee on Investigations and Oversight will come to order. 

Welcome to today’s hearing titled ‘‘The Impact of International 

Technology Transfer on American Research and Development.’’ You 

will find in front of you packets containing our witness panel’s 

written testimony, their biographies, and their truth-in-testimony 

disclosures. I now recognize myself for five minutes for an opening 

statement. 

Good morning, everyone. I welcome to you to today’s hearing that 

again is entitled ‘‘The Impact of International Technology Transfer 

on American Research and Development.’’ I want to thank our witnesses for being here and for being so flexible. This hearing was 

originally scheduled back in September, but because of a lastminute Member briefing regarding the Benghazi incident, we were 

forced to postpone this hearing. Ironically, as we speak, there is 

enough—there is another briefing on Benghazi going on right now 

as well, but we will move ahead. I apologize for any inconvenience 

this may have caused any of you, particularly to our witnesses and 

Members, and I thank all of you for your understanding. 

This hearing was difficult to organize for other reasons as well. 

Many potential witnesses expressed apprehension about appearing 

before this Committee to testify on this topic out of fear of retribution against their business interests by foreign countries. While 

they expressed serious concerns to us in private about the tactics 

of many foreign countries when it comes to technology transfer, 

they worried that speaking out publically about those tactics would 

adversely affect them in those foreign markets. 

This is unfortunate, because today’s hearing addresses a topic of 

great concern to this committee—innovation and U.S. competitiveness, particularly in international markets. While the U.S. invests 

significant taxpayer resources in public as well as in private sector 

research and development, other nations remain dedicated to acquiring the fruits of our labor. Their efforts to acquire U.S. technology have clearly had a significant impact on U.S. trade, our 

GDP, and the U.S.’s standing as a world leader in research, development, and innovation. Unfortunately, measuring that impact has 

proven very difficult. 

Last year, the U.S. taxpayers spent roughly $130 billion on research and development, and U.S. companies and universities 

spent another $310 billion. This doesn’t even take into effect or account the impacts of tax incentives that total over $8 billion. Determining who ultimately benefits from these investments should be 

something that government as well as private sector entities are 

able to track. 

Our concerns are not limited to economic espionage and theft, 

even though this is clearly a significant threat. This Subcommittee 

has been active in ensuring that federal agencies under our jurisdiction are prepared for cyber attacks and insider threats that seek 

to steal sensitive and proprietary information. We are here today 

to discuss something different, but just as troubling—the policies 

and practices of foreign countries that facilitate the transfer of U.S. 

technology and intellectual property overseas. This happens in 

many ways, sometimes through domestic manufacturing requirements, sometimes through standards certification, and sometimes 
12 

through conditions of foreign investment. These policies, among 

others, allow countries to exploit our R&D investments without 

making the commensurate investments themselves. 

Oftentimes, U.S. companies allow this transfer to take place because they are faced with a very difficult choice. In today’s global 

marketplace, companies need access to the largest markets in order 

to compete. Sometimes, companies are faced with the difficult decision to either file for bankruptcy or agree to detrimental financing 

terms, such as transferring their intellectual property, in order to 

receive additional investment. 

It was reported just last week that a company, A123, a U.S. company that has received $124 million of its $249 million grant from 

the Obama Administration, this to develop battery technology for 

electric cars, would file for bankruptcy. As part of that bankruptcy, 

A123 planned to sell its business to a U.S.-based company, Johnson 

Controls, for $125 million, but other bidders are able to make better offers at an upcoming auction that I understand is going to 

happen tomorrow. China’s Wanxiang Group Corporation has already expressed interest in procuring A123 and making it entirely 

possible that the U.S. taxpayer’s investment in A123 will be 

shipped off to China. This is just the most recent case. Several 

other companies that received significant support from U.S. taxpayers, like Evergreen Solar, were faced with making difficult decisions, very similar to this, in order to remain viable. 

Time and time again, we have seen U.S. R&D investments, particularly in sectors that received favorable treatment from the current Administration like wind, solar, and batteries, simply be sent 

overseas. It is a dirty secret that nobody wants to talk about—not 

the government agencies that fund the R&D, not the companies 

that receive the R&D, not the associations that represent the companies, and certainly not the foreign countries that benefit from 

our R&D investments—investments, I should add, that ultimately 

came from money that we borrowed from China in the first place. 

I want to be clear; this is not just about China. This is not just 

about green technology. It is happening across the board. This also 

isn’t about the value of public or private sector R&D, which everyone realizes is important for economic competitiveness. Our goal is 

to better understand the magnitude of the international technology 

transfer, ensure that someone is monitoring these issues, and identify measures to ensure that U.S. investments are realized by U.S. 

interests. 

Now, I recognize my Ranking Member, my good friend from New 

York, Mr. Tonko, for his opening statement. 

[The prepared statement of Mr. Broun follows:] 

PREPARED STATEMENT OF SUBCOMMITTEE CHAIRMAN PAUL BROUN

Good morning, and welcome to today’s hearing titled ‘‘The Impact of International 

Technology Transfer on American Research and Development.’’ I want to thank our 

witnesses for being here and for being flexible. This hearing was originally scheduled in September, but because of a last minute member briefing by the Secretary 

of State on the Benghazi incident, we were forced to postpone. Ironically, there is 

another briefing on Benghazi right now as well, but we will move ahead. I apologize 

for any inconvenience this may have caused you, and thank you all for your understanding. 

This hearing was difficult to organize for other reasons as well. Many potential 

witnesses expressed apprehension with appearing before the Committee to testify on 
13 

this topic out of fear of retribution against their business interests by foreign countries. While they expressed serious concerns to us in private about the tactics of 

many foreign countries when it comes to technology transfer, they worried that 

speaking out publically about those tactics would adversely affect them in foreign 

markets. 

This is unfortunate, because today’s hearing addresses a topic of great concern to 

this Committee —innovation and U.S. competitiveness. While the U.S. invests significant taxpayer resources in public and private sector research and development, 

other nations remain dedicated to acquiring the fruits of our labor. These efforts to 

acquire U.S. technology have clearly had a significant impact on U.S. trade, GDP, 

and our standing as a world leader in research, development, and innovation. Unfortunately, measuring that impact has proven difficult. Last year, the U.S. taxpayers spent roughly $130 billion on research and develop- ment, and U.S. companies and universities spent about another $310 billion. This 

doesn’t even take into account the impacts of tax incentives that total over $8 billion. Determining who ultimately benefits from these investments should be something that government or private sector entities are able to track. 

Our concerns are not limited to economic espionage and theft, even though that 

is clearly a significant threat. This Subcommittee has been active in ensuring that 

federal agencies under our jurisdiction are prepared for cyber attacks and insider 

threats that seek to steal sensitive or proprietary information. We are here today 

to discuss something different but just as troubling—the policies and practices of 

foreign countries that facilitate the transfer of U.S. technology and intellectual property overseas. This happens in many ways, sometimes through domestic manufacturing requirements, sometimes through standards certification, and sometimes 

through conditions of foreign investment. These policies, among others, allow foreign 

countries to exploit our R&D investments without making the commensurate investments. 

Often times, U.S. companies allow this transfer to take place because they are 

faced with a difficult choice. In today’s global marketplace, companies need access 

to the largest markets in order to compete. Sometimes, companies are faced with 

the difficult decision to either file for bankruptcy, or agree to detrimental financing 

terms, such as transferring intellectual property, in order to receive additional investment. It was reported just last week that A123, a U.S. company that has received $124 million of its $249 million grant from the Obama Administration to develop battery technology for electric cars, would file for bankruptcy. As part of that 

bankruptcy, A123 planned to sell its business to U.S.-based Johnson Controls for 

$125 million, but other bidders are able to make better offers at an upcoming auction. China’s Wanxiang Group Corporation has already expressed interest, making 

it entirely possible that the U.S. taxpayer’s investment in A123 will simply go to 

China. This is just the most recent case. Several other companies that received significant support from U.S. taxpayers, like Evergreen Solar, were faced with making 

difficult decisions such as this in order to remain viable. 

Time-and-time-again, we have seen U.S. R&D investments, particularly in sectors 

that received favorable treatment from the current Administration like wind, solar, 

and batteries, simply be sent overseas. It’s a dirty secret that nobody wants to talk 

about—not the government agencies that fund the R&D, not the companies that receive the R&D, not the associations that represent the companies, and certainly not 

the foreign countries that benefit from our R&D investments. Investments, I should 

add, that ultimately came from money we borrowed from China in the first place. 

I want to be clear, that this is not just about China. And this is not just about 

green technology. It’s happening across the board. This also isn’t about the value 

of public or private sector R&D—which everyone realizes is important for economic 

competitiveness. Our goal is to better understand the magnitude of the international 

technology transfer, ensure that someone is monitoring the issues, and identify 

measures to ensure that U.S. investments are realized by U.S. interests. 

Mr. TONKO. Thank you, Mr. Chair. 

American citizens have a huge stake in what American firms do 

with their innovations. The Federal Government is a key driver of 

innovation through federal research laboratories and its substantial support of research through grants and contracts. In fiscal year 

2012, the Federal Government appropriated over $140 billion for 

research and development. American firms also received support 

for innovation through the widely used Research and Experimentation Tax Credits. For 20 years, this tax credit has effectively sub-
14 

sidized research by private firms, and by 2011, it represented approximately $10 billion a year in savings to companies. This credit 

obviously needs to be extended. 

Finally, a whole web of public supports ranging from state budget appropriations to Bayh-Dole Act protections for intellectual property to student loans and education tax credits have created an engine of innovation that drives our economic success in this ideas 

economy. 

The central engine of innovation remains the American university. Our universities lead the world in producing high-quality 

science and engineering students, and they provide a home for researchers who work at the cutting edge of their fields to supply the 

basic ingredients for continued innovation. 

These interconnected public investments have helped make the 

United States one of the most innovative economies in the history 

of the world with American firms leading in almost every area. The 

American people provide this support out of a belief that innovation will ensure that our economy remains strong in the long run. 

They also believe that American firms that reap the lion’s share of 

these supports will indeed share the fruits of these innovations 

with our society in the form of jobs for hardworking Americans. 

When firms instead license that technology abroad, whether as 

part of a strategy to build access to foreign markets or because 

they wish to move production to lower-wage markets, the American 

taxpayer finds that the bargain they made to support those firms 

is not as rosy as had been promised. It is no secret that it is faster 

and cheaper to adopt technologies than it is to develop them. It 

comes as no surprise that with the development of a global marketplace, the intense competition for market share and the movement 

to a more open and integrated world economy, governments have 

turned to policies that will enable their firms to exploit the innovations of others. 

I am indeed uncomfortable with the idea that American firms license away innovations subsidized by our citizens. It is bad enough 

that we have lost jobs when firms offshore production and move out 

of our communities. The idea that they would exchange taxpayersupported innovations for market access, however reluctantly, is 

very disturbing to me. 

Stating opposition to the practice of foreign governments adopting policies that bar American firms from doing business in those 

countries, absent a local partner and absent a technology-sharing 

agreement, is, quite honestly, easy. Finding a solution is much 

more complicated. We cannot abandon our investments in education and research, but our citizens have the right to expect and 

require I would note a return on those investments. 

I do not have a policy answer ready to address these concerns, 

but I am very interested in hearing the thoughts of the witnesses 

today as you are invited to appear before us. And I thank you 

again, Mr. Chair, for convening this hearing. 

[The prepared statement of Mr. Tonko follows:] 
15 

PREPARED STATEMENT OF SUBCOMMITTEE RANKING MEMBER PAUAL D. TONKO

Thank you, Mr. Chairman. 

American citizens have a huge stake in what American firms do with their innovations. The Federal government is a key driver of innovation through federal research laboratories and its substantial support of research through grants and contracts. In Fiscal Year 2012, the Federal government appropriated over $140 billion 

for research and development. American firms also receive support for innovation 

through the widely used Research & Experimentation tax credit. For 20 years, this 

tax credit has effectively subsidized research by private firms, and by 2011 it represented approximately $10 billion a year in savings to companies. This credit needs 

to be extended. 

Finally, a whole web of public supports ranging from State budget appropriations 

to Bayh-Dole Act protections for intellectual property and through to student loans 

and education tax credits have created an engine of innovation that drives our economic success. 

And of course, American universities which lead the world in producing high quality science and engineering students, and which provide a home for researchers who 

work at the cutting edge of their fields supply the basic ingredients for continued 

innovation. 

These interconnected public investments have helped make the U.S. one of the 

most innovative economies in the history of the world with American firms leading 

in almost every area. The American people provide the support out of a belief that 

innovation will ensure that our economy remains strong in the long run. They also 

believe that American firms that reap the lion’s share of this support will share the 

fruits of those innovations with our society in the form of jobs for hard-working 

Americans. 

When firms instead license that technology abroad—whether as part of a strategy 

to build access to foreign markets or because they wish to move production to lowerwage markets—the American taxpayer finds that the bargain they made to support 

those firms is not as rosy as had been promised. It is no secret that it is faster and 

cheaper to adopt technologies than it is to develop them. 

It comes as no surprise that with the idea that American firms license away innovations subsidized by our citizens. It is bad enough that we have lost jobs when 

firms offshore production and move out of our communities; the idea that they 

would exchange taxpayer supported innovations for market access, however reluctantly, is very disturbing to me. 

Stating opposition to the practice of foreign governments adopting policies that 

bar American firms from doing business in those countries absent a local partner 

and absent a technology sharing agreement is easy. Finding a solution is more complicated. We cannot abandon our investments in education and research, but our 

citizens have the right to expect a return on those investments. 

I do not have a policy answer ready to address these concerns. I am very interested in hearing the thoughts of the witnesses you have invited to appear before 

us today, Mr. Chairman. 

Chairman BROUN. Thank you, Mr. Tonko. It is really nice that 

we are both on the same page in making sure our taxpayers get 

a proper return from their investment in these companies. 

If there are Members who wish to submit additional opening 

statements, your statements will be added to the record at this 

point. 

At this time, I would like to introduce our panel of witnesses: Dr. 

Robert D. Atkinson, President of Information Technology & Innovation Foundation; and the Hon. Dennis Shea, Chairman, U.S. China 

Economic and Security Review Commission. I thank you all for you 

all’s patience and willingness to have the flexibility to be here 

today. 

And as our witnesses should know, spoken testimony is limited 

to five minutes each after which Members of the Committee will 

each have five minutes to ask questions. Your written testimony 

will be included in the record of the hearing. And it is the practice 

of the Subcommittee on Investigations and Oversight to receive tes-
16 

timony under oath. Do either of you have any objection of taking 

an oath? 

Dr. ATKINSON. No, sir. 

Mr. SHEA. No. 

Chairman BROUN. Let the record reflect that both stated no, so 

that is great, instead of shaking their head from side to side. 

You also may be represented by counsel. Do either of you have 

any counsel with you here today? 

Mr. SHEA. I have a couple of very able staffers with me, but I 

don’t know if they rise to the level of counsel. 

Chairman BROUN. Okay. Legal counsel is what we are discussing 

here. 

So let the record reflect that the witnesses have—that none of 

the witnesses have counsel. 

Now, if you all would please stand and raise your right hand. 

Do you solemnly swear and affirm to tell the whole truth and 

nothing but the truth, so help you God? 

Dr. ATKINSON. I do. 

Mr. SHEA. I do. 

Chairman BROUN. You may be seated. 

Let the record reflect that the witnesses participating have taken 

the oath of truthfulness. 

Now, I recognize our first witness, Dr. Atkinson. If you would, 

sir, turn on your microphone. You have five minutes. We are not 

going to gavel you down at 5 if you take a few seconds over, but 

if you would, we have votes a little after 11:00, so we want to get 

to questions as quickly as we can. Thank you, sir. 

TESTIMONY OF DR. ROBERT D. ATKINSON, PRESIDENT, 

INFORMATION TECHNOLOGY & INNOVATION FOUNDATION 

Dr. ATKINSON. Thank you, Mr. Chairman. Thank you, Congressman Tonko. I appreciate the invitation to appear before you today. 

This is a critical issue that you are facing and discussing today. 

Many nations are looking to get as much technology, knowledge, 

and innovation from other countries who are leaders like the 

United States and like Europe, and they are looking to get it in inappropriate ways as a way to advance their own economy. 

We mentioned China. China is not the only one but they are the 

most egregious. For example, in 2011, the Chinese Government 

committed to ‘‘place the strengthening of indigenous innovation capability at the core of economic restructuring.’’ Indigenous innovation refers to ‘‘enhancing original innovation, integrated innovation, 

and re-innovation based on assimilation and absorption of imported 

technology.’’ What that really means in English is they are going 

to do everything they can to take as much technology from people 

who develop it and get it into their economy and into their firms. 

Some of these policies that countries use are quite legitimate. 

Countries and firms in other countries buy technology, they license 

it, they have policies like R&D tax credits to spur their own innovation. In fact, we now have the 27th least generous R&D tax credit in the world. But many of these policies are illegitimate and they 

violate the spirit if not the letter of the WTO. And let me just go 

through a few of them. We have already talked about some. 
17 

IP theft—industrial espionage is up according to the FBI and according to national security experts. You see high-profile cases recently like the Chinese stealing chemical secrets from DuPont, 

stealing wireless telecom secrets from Motorola, and stealing and 

bribing employees and stealing from an American company called 

American Superconductor, which is one of the largest providers of 

wind turbine software in the world. 

We also see—again, you alluded to this, Mr. Chairman—stateowned or state-backed companies who will buy U.S. companies. I 

think this is going to be an increasing trend. Again, it is one thing 

for a private company in another country to come in and buy a 

company—our companies do the same—but it is very different 

when a company comes in to bid on a U.S. company where they are 

backed by the state. They have deep pockets and many of these, 

particular in China, are either state-owned or state-backed, and 

they have an unfair advantage when it comes to buying and bidding for U.S. companies. So we have really got to do a better job, 

particularly in CFIUS and other areas like that. 

Another area is weak IP protection. Many of these countries intentionally have weak IP regimes. Even if they look strong on 

paper, they are weak in enforcement. We see this, for example, in 

data exclusivity in biopharmaceutical firms. We have a 12-year 

data exclusivity period in the United States because of Congress 

and this is about the minimum seeing as the time that companies 

need to be able to recoup their investments in this highly risky 

technology. Many countries are trying to weaken that and have 

very limited data exclusivity policies for biotechnology. 

I think the most troubling area and the widest area is basically 

limiting market access to tech transfer. It is hard for a small country to do that with just a few million people because multinationals 

will say we don’t really care about your market; we will just bypass 

you. But big countries like Brazil, India, China, they have essentially a monopsony. They have so much market power they basically can force foreign companies to take these unfair extortionist 

practices and they do that. China is a good example. In China, it 

is virtually impossible for a foreign company to go in there and just 

open up a factory or an office so they can—we can do that here. 

Foreign companies come here all the time; they can open up here. 

In China, they require joint ventures. 

Another area is compulsory licensing. Countries that just simply 

say we think we want your technology. If you want to sell it, here, 

you have to do a compulsory license. We see that particularly in 

drugs. 

And finally, in procurement where the government itself says we 

are not going to buy products unless the company transfers the 

technology to our country. 

So what should we do about this? The most important thing we 

can do about it is exactly what you are doing, which is we need to 

raise the issue. I simply don’t think enough policymakers are 

aware of this, enough people in the media are aware of the significance of the problem. 

But the second thing we need to do is be much more active in 

enforcement. And I know there is a budget crisis, but I think a few 

million dollars more at USTR would be money very, very well 
18 

spent. We spend at least 100 times, if not more, defending our national security through the Defense Department than we do defending our economic security through USTR. USTR is just simply 

under-resourced to be able to bring the kinds of cases and the pressures that they need to do. 

The second area I think is critical is we have—we can’t solve this 

problem on our own. We have to do it with our allies, particularly 

with Europe. And I would suggest two things. One is we have got 

to develop a strategy where European and American governments 

actively joint arm and say to countries like China and Brazil and 

India that we are just not going to accept this anymore. 

Another area I think to consider there—I know I am slightly over 

and I will just stop—is I think we need to think about joint antitrust exemption. We did this in 1984 with an antitrust exemption 

for collaborative R&D for U.S. companies. I think we need to give 

companies the tools to say together, if they are all in the chemical 

industry, for example, or the aerospace industry, we are all going 

to agree that we are not going to transfer technology to these countries under duress. If we want to do it on our own, that is one 

thing, but we are not going to do it under duress. That way, they 

can’t get played off against one another. 

And finally, we need to make sure that any trade agreements we 

sign, including the Bilateral Investment Treaty that is being negotiated with China right now, are really gold-standard agreements. 

I think we put way too much pressure on either this Administration or the last or any Administration just to sign agreements. Get 

an agreement, get an agreement. A bad agreement is worse than 

no agreement. We need good agreements. We need gold-standard 

agreements. We need to do that with the Trans-Pacific Partnership 

Agreement, we need to do it with the China BIT Agreement, and 

we need to basically say to the—to any Administration again, regardless of party, you need to negotiate trade agreements, but they 

need to be gold-standard agreements that protect U.S. interests. 

Thank you. 

[The prepared statement of Dr. Atkinson follows:] 
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Chairman BROUN. Thank you, Dr. Atkinson. 

Mr. Shea, you are recognized for five minutes. 

TESTIMONY OF THE HONORABLE DENNIS C. SHEA, 

CHAIRMAN, U.S. CHINA ECONOMIC AND 

SECURITY REVIEW COMMISSION 

Mr. SHEA. Thank you, Chairman Broun, Ranking Member Tonko, 

Members of the Subcommittee. I appreciate the opportunity to 

speak before you today. 

I will share some of the Commission’s findings, but the views I 

present today are my own. 

Technology transfer is just one part of a multi-faceted strategy 

by the Chinese Government to move China’s economy to a higher 

position on the value-added, high-technology industrial chain and 

to develop a culture of innovation. 

The Commission addresses many of the broader issues in China’s 

innovation strategy in our 2012 report to Congress, which was released in mid-November. Today, I will focus my testimony on Chinese Government efforts intended to transfer technology from the 

United States and other developed nations to China and Chinese 

companies. 

Let me say at the outset that China has made no secret of its 

ambition to shift its economy from one dependent on manufacturing products invented elsewhere to one that produces products 

whose intellectual property originates in China. One of China’s key 

Central Government planning documents, the ‘‘2006 Medium- to 

Long-Term Plan for the Development of Science and Technology,’’ 

describes 402 technologies in which China seeks to gain expertise, 

and it calls for China to limit its dependence on foreign technology 

to just 30 percent by the year 2020. The 12th five-year plan, another Chinese Central Government plan for economic development, 

which was adopted last year, identified seven strategic emerging 

industries in which Chinese corporations are expected to become 

global champions. These industries include clean energy technology, biotechnology, and next-generation information technology. 

To help achieve its technology goals, China frequently adopts 

policies of tech transfer as a condition for foreign firms 1) to gain 

access to Chinese markets in certain industries, 2) to be considered 

for procurement by the Chinese Government, and 3) to benefit from 

Chinese subsidies and tax benefits. 

Depending on the industrial sector, the Chinese Government requires many foreign companies, as Dr. Atkinson mentioned, to 

enter into joint ventures with Chinese firms in order to enter the 

Chinese market, the Chinese companies often requiring their foreign partners to transfer technology as a precondition for the establishment of the joint venture. Additionally, Chinese law requires 

government approval of foreign joint venture agreements. 

Paragraph 7.3 of China’s Protocol of Accession to the World 

Trade Organization prohibits China from conditioning the approval 

of investment by foreign companies on the transfer of technology, 

but China claims that it is not violating WTO prohibitions because 

the actions taken by foreign companies are purely business decisions. This argument has been seriously questioned by the U.S. 

Government and business groups. Here is what the USTR said ear-
34 

lier this year, and I quote, ‘‘Although China has revised many of 

its laws and regulation to conform to its WTO commitments, some 

of these measures continue to raise WTO concerns, including those 

that encourage technology transfers to China without formally requiring them.’’ U.S. companies remain concerned that this encouragement in practice can amount to a requirement, particularly in 

light of the high degree of discretion provided to Chinese Government officials when reviewing investment applications. 

My written testimony goes into greater detail about the dilemma 

that U.S. companies face when considering whether to transfer 

technology in China. However, I do want to note that of some 300 

U.S. businesses surveyed by the American Chamber of Commerce 

in China last year, one in three acknowledged that either they or 

their clients had been negatively impacted by forced technology 

transfer. 

As Dr. Atkinson mentioned, forced technology transfer also occurs through the Chinese Government procurement policies. Although China agreed in 2001 to accede as soon as possible to the 

voluntary WTO Agreement on Government Procurement, that has 

not yet occurred. Without the constraints of the GPA, the Chinese 

Government has introduced restrictive procurement laws. In 2009, 

Beijing required companies to file applications to be considered for 

accreditation as indigenous innovation products eligible for procurement. 

President Hu Jintao came to the United States and said we are 

repealing this policy. The policy looks like it has been repealed at 

the Central Government level, but—the message hasn’t gotten to 

all the provinces, which have huge procurement markets as well. 

So this is an issue that needs continuing monitoring by the Federal 

Government. 

Another issue is the issue of patents. The impetus to register 

local patents is also being reinforced by the rising number of utility 

model patents issued in China. While such patents are used 

throughout the world, they are subject to less rigorous and expensive review processes in China. Utility model patent holders in 

China cannot just patent troll, using patents as a ploy to either exclude foreign competitors or to justify intellectual property theft. 

As companies continue to transfer technology to China, many 

will face increased competition and pressure from Chinese firms. 

They may even find that they are excluded from a large part of 

China’s market that they had hoped to gain access to, and that 

they would have access to if China had adhered to international 

trade norms. Instead of the reciprocal trade relationship that we 

should have with a WTO partner, China’s conditioning access to 

their markets on the transfer of technology results in the loss of 

American jobs and harms the American economy. 

Two points, as I mentioned in my written testimony, I don’t believe reciprocity is a bad word. Maybe we ought to be demanding 

some reciprocity in this relationship. And secondly, I agree with the 

point, the importance of putting pressure on China on a multilateral basis. Let’s work with the Europeans, the Japanese, and other 

partners to deal forcefully with these issues. 

Thank you very much. 

[The prepared statement of Mr. Shea follows:] 
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Chairman BROUN. Thank you, Mr. Shea. 

I thank you all for your testimony. 

Reminding Members that Committee rules limit questions to five 

minutes each. The Chair at this point will open the first round of 

questions. I now—the Chair recognizes himself for five minutes. 

Dr. Atkinson mentioned that China often requires that U.S. companies create R&D facilities in China as a condition of market access. How does creation of an R&D facility lead to the transfer of 

R&D investments in intellectual property? And I ask both of you 

all that question. Maybe we will start with Mr. Shea and then we 

will come to Dr. Atkinson since you started off the—— 

Mr. SHEA. Well, I would say 20 years ago, western companies 

would happily transfer technology because the technology wasn’t 

that advanced. But as production cycles have gotten much, much 

shorter, the Chinese know that they—they are not willing to accept 

just the old stuff. They know what is out there and what is new. 

So it is hard to say with respect to a specific facility. 

Western companies go to China. From what they have told us, 

they put in significant protocols to protect that IP in that facility 

from theft. Whether it works or not is subject to question. 

Chairman BROUN. Dr. Atkinson? 

Dr. ATKINSON. So when I was in Nanjing about, I guess, a yearand-a-half ago on a delegation and we visited a Ford Motor Company facility there where, first of all, Ford had opened a factory— 

which, again, by Chinese rules they had to do a joint venture—and 

as a condition of the joint venture they had to open up an R&D 

laboratory. And as we were in the facility, we looked across the little road they were building another building and I asked what is 

that? And they said that is the second R&D facility to go with the 

second factory. 

Now, what is the problem with that? There are two problems 

with that. One is that is R&D that Ford would otherwise would 

probably be doing here. And so we are missing out on those jobs 

and the technologies that would happen. And secondly, as Mr. Shea 

alluded to, that technology just doesn’t stay within the Ford facility. Those are mostly Chinese scientists and engineers working in 

that facility who, some of them will take that technology to their 

joint venture partners; they will take it to other companies in 

China and just turn it over if you will. 

Chairman BROUN. And exclude U.S. interest? 

Dr. ATKINSON. Absolutely. The entire goal there is to fundamentally exclude U.S. company interest and foreign company interest 

over the next decade. 

Chairman BROUN. Are either of you aware of any federal effort 

to proactively monitor the technology transfer issue as an economic 

policy matter rather than a national security matter? Dr. Atkinson? 

Dr. ATKINSON. I am not. We have basically haphazard and notvery-well-coordinated efforts. I think this is an issue that the National Intelligence Committee—Service group is looking at as well 

as DOD because they see it as critical to our defense and intel interests. But they don’t have any systematic—a way right now of 

looking at how bad this problem is. And we certainly don’t do it out 

of the Department of Commerce or USTR, so it is very haphazard. 

We don’t really know what is going on as much as we should. 
49 

Chairman BROUN. Mr. Shea. 

Mr. SHEA. Mr. Chairman, in our 2011 report—I know Ranking 

Member Tonko asked for some policy solutions—in our 2011 report 

we have two recommendations—if I may read them—that may attempt to address this issue. First, we recommend that Congress 

hold hearings to assess the success of the strategic and economic 

dialogue in a Joint Committee on Commerce and Trade in addressing Chinese actions to implement its WTO commitments, including 

with regard to the issue of tech transfer. And in preparation for 

such hearings, Congress should request that the Government Accountability Office prepare an inventory of specific measures 

agreed to as part of these bilateral discussions. So let us see if 

these discussions, which are supposed to produce results, are actually producing results, specifically with respect to the issue of tech 

transfer. 

The other issue—the other recommendation from our 2011 report 

is that Congress ask the Government Accountability Office again to 

undertake an evaluation of investments and operations of U.S. 

firms in the Chinese market and identify what federally supported 

R&D is being utilized in such facilities and the extent to which and 

on what terms such R&D has been shared with Chinese actors in 

the last 10 years. 

Chairman BROUN. Very good. My time is just about expired, but 

if you all have any more specific solutions, I don’t have time to ask 

my next question, but we will go forward. If you all have any other 

suggestions or solutions to try to monitor this, I would appreciate 

it. 

Now, I will recognize Mr. Tonko for five minutes. 

Mr. TONKO. Thank you, Mr. Chair. 

Dr. Atkinson, you state in your testimony that, and I quote, 

‘‘China is still largely a technologically developing nation forcing 

companies from developed nations to transfer their technology, and 

that is as a faster way to innovation success than engaging in the 

hard work to move up the technology learning curve as European 

and American companies have had to do.’’ In your opinion, why is 

it that American firms are so quick to give away their technology 

inherited through generations of innovators and a federal investment when there are so many examples that the Chinese would 

just use this technology to compete not only in China, but also in 

other global markets and in America as in your example of highspeed rail? 

Dr. ATKINSON. Thank you. I think there are two reasons. One is 

it is not just American firms, though in the high-speed rail case I 

think is a classic where Kawasaki transferred high-speed rail technology to the Japanese as a condition of them being able to sell 

them equipment for the largest high-speed rail system in the 

world, and then a few years later, the Chinese state-owned enterprise, started to outcompete them in third-party markets. So even 

countries where the firms have a longer-term horizon, they get 

forced to do this because they are faced with a Hobson’s Choice. 

They can either do this or they are left out of the market completely. So that is why I think joint action is so important. 

But I do think the second reason is that American companies are 

under much shorter time horizon pressures to show returns be-
50 

cause of the way our equity markets are structured, and so they 

oftentimes don’t have the ability to—or the patience to say, well, 

you know, we are not going to do this because we know in ten 

years it is going to be a problem. It is going to help us right now 

but in ten years it is going to be a problem. I think the way equity 

markets are structured in other countries sometimes gives other 

companies more leeway. 

Mr. TONKO. Thank you. And the United States Government has 

invested heavily in promoting electric vehicles, and as you note in 

your testimony, Dr. Atkinson, the Chinese Government precluded 

the Chevy Volt from qualifying for alternative fuel vehicle subsidies 

unless GM agreed to transfer their engineering secrets to a joint 

venture in China. However, GM did not let this deter them from 

entering this market. They conducted a separate agreement to 

transfer battery and other electric car technology to a Chinese joint 

venture. 

So while I agree that China should be opposed in the policies 

they are currently pursuing to gain advantage, how can we encourage a new firm culture that would more aggressively protect American ingenuity and innovation? And do firms bear no social responsibility for the consequences of their conduct? 

Dr. ATKINSON. Well, what I would worry about is if we somehow 

said to U.S. companies you can’t transfer any technology under duress to China and somehow we could pass a rule or a law to that 

effect—my worry would be that it would just simply give foreign 

competitors the competitive advantage. We see this, for example, in 

the competition between Airbus and Boeing. China is the largestgrowing aviation passenger market in the world—jet market in the 

world—and if you are not in that market as either Boeing or Airbus, you are in tough shape. Now, if we were to, for example, say 

to Boeing you just can’t—you can’t help COMAC; they are a stateowned enterprise. You can’t help them; you can’t do anything. They 

are just going to basically say, okay, we are going to get everything 

and we will pressure Airbus. 

So I think—again, I go back to this. I think that is where we 

have to basically go—with the Japanese who are facing this exact 

same problem and the Europeans—and we have to all act collectively because you are right, Mr. Tonko. It is not in the interest of 

U.S. companies to do this, but it is very, very hard for them to resist this. 

Mr. TONKO. And finally, if either of you could make recommendations from the Federal Government perspective, and I know that 

Mr. Shea offered some comments, but are there any within the programs of agencies that we oversee such as NIST or DOE or NSF 

or NASA? Is there anything you would recommend with—in association with those given agencies? 

Dr. ATKINSON. I haven’t thought extensively about that, but just 

a couple of quick thoughts. One, you could require that those agencies who are funding technology projects monitor the use of those 

technologies and where they end up being commercialized as a first 

step, which we don’t do. So again, it is not to say that—I would 

not put a hard ban on anything. There are real reasons why you 

might want to go and commercialize something in Canada, for example, but we at least ought to know exactly what is going on with 
51 

these when we are transferring or helping firms with federally supported R&D at home. 

Mr. TONKO. Mr. Shea, any thoughts? 

Mr. SHEA. Well, NASA’s Jet Propulsion Laboratory was the subject of a major hacking attempt. I would make sure that NASA reported to you whether there was any dissipation of technology as 

a result of that hacking. This is not related to those specific agencies, sir, but this antitrust exemption is something that we recommended in 2010 that Congress explore with respect to the airplane industry. We looked at the offset requirements being imposed 

on airplane manufacturers. If you want to sell airplanes to China, 

you have got to build facilities in China. And we thought maybe 

the major companies should get together and collectively resist 

these efforts, and that may require an antitrust exemption. So that 

should be looked at. 

Mr. TONKO. Thank you very much. 

Chairman BROUN. The gentleman’s time is expired. 

I now recognize Dr. Benishek for five minutes. 

Dr. BENISHEK. Thank you, Mr. Chairman. 

This is really interesting to me and to see how this works because obviously these American companies, you know, are doing 

this voluntarily because they want the business that is available in 

China. And the thing that Mr. Tonko just talked about to me seems 

to be the crux of the issue is that if companies want to do this freely, I don’t see, you know, why they shouldn’t, but if the American 

people are paying for the technology, you know, shouldn’t there be 

some sort of a limit as to, you know, what these private companies 

can do with the technology if it is somehow associated with a taxpayer investment? 

I mean that to me is the crux of the issue. I mean they wouldn’t 

do business in China unless they thought it was in their best interest to do that, but since some of the funding comes from the government, is there—we touched a lot over—a little bit with Mr. 

Tonko. Was there some way of doing that that is not completely— 

you know, I mean you mentioned doing something in Canada and 

I can understand that, but is there some way we can do that better 

without completely closing off that, you know, the good part of the 

market? Do you understand my question? I am just trying to figure 

that out. 

Dr. ATKINSON. I do. I—just a couple of points and then I will try 

to provide an answer. I do think that a lot of this is not voluntary, 

that—the intellectual property theft, the—so there are certain 

parts where they just take it. 

Dr. BENISHEK. Yeah, okay. 

Dr. ATKINSON. And then there is another component where companies give it, but they essentially have a gun to their head. So it 

is—— 

Dr. BENISHEK. But then they could not do business. I mean they 

could just not go there. I mean they have that option, right? I mean 

that is the truth. 

Dr. ATKINSON. It is true, but as I think as I said in my opening, 

they have that option with regard to Zimbabwe, but they don’t 

have it—they really don’t have it with—you know, they could just 

say we are going to avoid China and Brazil and India, but it essen-
52 

tially—Mr. Tonko’s point, that also consigns them to a long-term 

competitive disadvantage and perhaps decline because they are 

just not in those markets—— 

Dr. BENISHEK. Right. 

Dr. ATKINSON. —and their competitors would be in those markets and gain the market share. So I do think that it is worth exploring, perhaps some rules about where—what companies can do 

if it is clearly federal technology that has been supported where 

there is a grant involved for an R&D project. I think it is definitely 

worth exploring where those can be commercialized and made. 

One thing I would really strongly encourage you to do is as we 

move forward, which I hope we do as a country with a trade agreement with Europe, I think that is a very important next step that 

we get the Europeans to adopt the same policies with regard to all 

of their science and technology and framework programs. Again, if 

we both have the same policies about what our technology can be 

used for, it is going to be harder for those countries to play us off 

against each other. 

Dr. BENISHEK. So as I understand, the Chinese don’t really prosecute this theft part of it, you know, the actual people stealing the 

technology, which you must have, you know, safeguards in that in 

other countries where employees are not allowed to do that, but apparently that is not enforced in China or that is a problem. 

Mr. SHEA. Yeah, I think that is fair to say, Congressman. They 

have great laws. The laws are on the books. They have courts but 

they don’t enforce the laws effectively. Going back to your question 

about R&D and taxpayer-funded R&D being used in China and 

then taken in China, the recommendation that we made in 2011 

I think has been acted upon by Congressman Rohrabacher if I am 

not mistaken, so thank you for doing that. So that might be—getting a handle on the problem, getting a handle on the extent of 

what is going—what is being siphoned out would be a good first 

step. 

I just want to share this issue of competitive pressure and, you 

know, forced technology transfer; you are right; it is voluntary. I 

mean no one is forcing you to do business in China but companies, 

because there is such a large market, feel compelled. And I had a 

conversation that still sticks in my memory about 20 years ago. I 

guess it was 1990. I was part of a group that met with Akio Morita, 

who is the founder of Sony, a great innovative company at the 

time. And one thing that he said that the U.S. did wrong was it 

had too short a—companies had too short a time horizon. And he 

specifically said this—quarterly reporting is a bad thing because it 

forces companies to look for short-term profits rather than a longer 

investment timeline. That thought has stuck with me for these 

many years. 

Dr. BENISHEK. I thank you. 

I will yield back the remainder of my time. 

Chairman BROUN. Thank you, Dr. Benishek. 

Next person I will recognize is my friend from North Carolina, 

Mr. Miller, for five minutes. 

Mr. MILLER. Thank you, Dr. Broun. 

Mr. Shea, my questions are along the lines of what you just 

spoke to, corporate governance issues. I do agree with your testi-
53 

mony. I agree with the premise of this hearing that we should resist the policies of the Chinese Government. They are harming our 

economy. They are harming American workers, our ability to take 

advantage of our own investments and innovation. But I wonder if 

we are naive to think that the corporations that are subject to this 

are truly American corporations. They really do want to resist— 

that they really are being bullied into doing something contrary to 

the interests of the American economy and that that—and they 

really want to do that. 

In the last presidential campaign for all the talk of small business, which I think we should encourage, you would think that we 

were a nation of yeoman farmers and shopkeepers and artisans 

when in fact our economy is being dominated by enormous corporations, increasingly enormous corporations. The Economist ran a 

piece on that just two or three weeks ago. And they are not really 

American corporations. They may be incorporated in Delaware but 

they are international, international in the scope of their operations, international in their ownership. 

There was a piece this morning or yesterday in a publication— 

internet publication called Business Insider by Henry Blodget that 

said a theme that I have heard before that a generation ago American corporations saw themselves as having a variety of stakeholders, including their own workers, including the communities in 

which they have operations, including their own country. They 

were American corporations. And that has now been replaced completely by a philosophy or at least a stated philosophy that everything that corporate management did should be in the interest of 

making more profit. Is it the case that corporations are going to 

take into account at all the interest of the American economy? 

Should they? And how do we make that so? 

Mr. SHEA. Well, that is a very big statement. I will say, you 

know, Clyde Prestowitz has written a book on this issue—— 

Mr. MILLER. You have got two minutes and 25 seconds to answer 

this. 

Mr. SHEA. Okay. The pressures—corporations are with—American corporations are undoubtedly expanding. Their operations are 

moving on a global basis. I don’t think we can expect U.S. companies to ignore 2.5 billion consumers in China and India. So I completely appreciate the desire of U.S. companies to reach out to 

these markets and to tap into that consumer base. The question is 

what about our own productive capacity? What about our own 

manufacturing capacity? How does that diminish it? 

Our Commission looks at the U.S.-China relationship. We don’t 

look at U.S. domestic policies or U.S. corporate governance policies. 

That is not something that we feel is within our Commission’s 

mandate. But I think you raised some very good points. Do the interests of large corporations converge with the interests of the 

United States Government? It used to be said that what is good for 

GM is good for America. Is that necessarily true today? Again, this 

is not something that we—these are not the types of issues that— 

I am copping out here, sir. These are not the issues that the Commission itself looks at, but I think you have raised some valid 

points that deserve exploration. And there has been some good 

work on corporate governance issues by people like Prestowitz, by 
54 

people like Ralph Gomory and others who have some very strong 

opinions on these matters. 

Dr. ATKINSON. Now, I—— 

Mr. MILLER. Mr. Atkinson, yeah. 

Dr. ATKINSON. So when I got my Ph.D. at North Carolina back 

in the ’80s, I was involved a lot with the state government—— 

Mr. MILLER. You are playing to your audience now. 

Dr. ATKINSON. And—but I will note one of the things that North 

Carolina built its economy on after World War II and even through 

the ’80s was the movement of firms from the north who frankly 

had no loyalty to the north. They were Michigan companies or 

Delaware companies or Massachusetts—I mean they came down to 

North Carolina because the business climate was good. We are seeing that same dynamic today all around the world, and I think we 

can like it or we cannot like it. I really don’t think there is anything we can do about it. 

I think fundamentally it is incumbent upon us to do two things. 

One is to make the U.S. business environment the best in the 

world, which means in part protecting our multinational companies 

from these pressures and this extortion that they are facing overseas. The second thing, we have the highest corporate tax rate in 

the world now, we have the 27th-worst R&D tax credit, we haven’t 

funded science and research the way other competitors have, so I 

think we have got to do much more of that. 

Just on this point about what the companies’ interests are, there 

is a very good book by a finance professor at Northwestern that 

came out last year called ‘‘Saving Capitalism from Short-Termism,’’ 

and his argument is that the role of companies is to maximize 

shareholder value. And the problem is if U.S. companies increasing 

the maximized short-term shareholder value, not long-term net 

present value shareholder value. And that is exactly the dynamic 

we see in China. 

So I think dealing with corporate governance is important but I 

don’t think we have to sacrifice or get rid of the notion that companies are there to make a profit. They are just under pressures to 

make the wrong kind of profit I would argue today. 

Chairman BROUN. The gentleman’s time is expired. 

I ask unanimous consent that Mr. Rohrabacher, who is not a 

Member of this Committee, be allowed to ask questions. 

Hearing no objections, Mr. Rohrabacher, you are recognized for 

five minutes. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. 

This issue has a lot of layers to the onion, and we have heard 

the term extortion of our companies who go there and extortion of 

our business leaders. I think it is very hard to extort someone who 

is a willing accomplice. 

We have had a couple generations now of CEOs who are Ivy 

League trained and part of their training isn’t being loyal to the 

United States of America or to the people of the United States. 

Their Ivy League training, which quite often includes hostile analysis of current history and past history, making the United States 

look not like the—what most of believe it should be, which is the 

bastion of liberty and justice and the shining city on the hill like 

Mr. Reagan used to talk about, but instead that we are the—at the 
55 

root cause of much of the world’s problems. So we have CEOs who 

were trained in terms of their history not to be necessarily fans of 

their own country. And then we have CEOs who seem to also—so 

they don’t feel obligated to do something that is in the best interest 

of our country—they just don’t. There are many CEOs who don’t 

believe that. 

But what is even more disturbing, Mr. Chairman, is we have 

CEOs who don’t feel they have to do something in the best interest 

of their own corporation, much less their own employees. And we 

have just heard testimony talking about the short-term business 

decision by our corporations. Well, those are short-term business 

decisions made by specific individuals who head those corporations 

who may take short-term profit, give themselves bonuses, and get 

the hell out before the long-term consequences to their own company is being felt, much less the employees of the company. 

I think we are all in this together as Americans whether you are 

talking about employees or employers, and we should be. I mean 

the world depends on us having a certain dedication to the principles that our Founding Fathers thought was going to unite Americans. But we don’t seem to have it. And I don’t believe it is a product of extortion. I think it is a product of people joining on to what 

I see as an enemy camp, but at least it is an immoral force in this 

world. 

Are many of the—let me just note I think we need to restructure 

our system so that the corporate leaders do have long-term interests rather than the short-term quarterly profits that we heard 

about today. I personally believe, for example, that we should add 

into our system incentives to promote employee ownership, which 

would let the employees help pick the CEOs, give them a voting 

share, make sure they are involved with this whole process so that 

in the long run employees think of themselves as 20- or 30-year 

employees. CEOs see themselves as three- to five-year CEOs. Thus 

their notion is not as long-term as their own employees. 

But back to the basic issue here. How many of these companies 

that are benefitting from ripping off American technology development and the taxpayers who have paid for much of the development of the technology of these corporations who the CEOs are 

going over there and making these sweetheart deals—how much of 

that—how many of these companies that are benefitting over there 

are owned by the People’s Liberation Army? I mean you keep hearing the Chinese corporations buying this and buying that. Are 

these really fronts for the Chinese military? 

Mr. SHEA. I don’t know. That is the short answer. But people in 

America need to realize that the Chinese economy is significantly 

owned by the state. We have estimated that the Chinese economy, 

40 to 50 percent of it is state-dominated. So that the issue of dualuse capability is something that is very important. 

We, last year, examined this issue with respect to U.S. support 

for the development of the Chinese aviation industry. There are a 

couple of very large Chinese aviation companies that want to make 

competitors to the Airbus and to the 737 and commissioned a research report that talks about the potential application of the technology that gets transferred for military purposes. The Chinese are 

already undergoing a significant military modernization program. 
56 

They have something called the J20, a fifth-generation stealth 

fighter. 

Mr. ROHRABACHER. Let me interrupt at this point because my 

time is running out. Let me just note—— 

Mr. SHEA. Sure. 

Mr. ROHRABACHER. —everything he is saying, Mr. Chairman, is 

sinful against the United States of America. If we have a potential 

enemy—I think China is our adversary today, but it certainly has 

to be put in the potential enemy category—for us to have paid for 

the research and development that helped our airlines and our 

aviation and our aerospace industry, for them then to work in joint 

projects with the Chinese that then give Chinese companies these 

capabilities. And then we find out—which we will find out—that 

these Chinese aviation companies are all fronts for the People’s 

Liberation Army, that is the people who actually own those companies, we will have transferred the equivalent—and by the way, I 

understand the Boeing was negotiating with the Japanese. Just six 

months before Pearl Harbor, they were negotiating with selling the 

Japanese the blueprints for the B–17, which turned out to be most 

important bomber of World War II. We need to make sure that our 

technology is not going to someone who will be killing Americans 

five years down the line or ten years down the line. 

Chairman BROUN. The gentleman’s time is expired. 

Mr. ROHRABACHER. Thank you. 

Chairman BROUN. And I agree with the gentleman from California. Economic as well as military espionage is a tremendous 

issue that we face, but that is not the real issue here in this hearing. But I would be very eager to hear maybe until this date even 

further what you are saying, Mr. Shea and Dr. Atkinson, any further comments on that question. 

I thank you all for your valuable testimony today. Again, thank 

you for your flexibility and willing to come back and short-term notice for cancellation last time and willing to come back for this valuable testimony that you have given to us here today. 

I know I have many other questions that I will present to you 

all for written response, and I will appreciate an expedited response because it will be included in the official record. I know 

other Members of the Committee may have other questions also besides the ones that I have. We need to make sure that we have a 

way of monitoring this information transferred to these foreign entities, particularly in cases such as Mr. Rohrabacher was talking 

about that maybe even going to our enemies, both economic enemies as well as military enemies. So I am eager to hear you all’s 

suggestions about how we can monitor these things and even develop policies that will help prevent the transfer, particularly of 

those—the research and development that is funded by our taxpayers to these foreign entities and where they take advantage of 

our largess. 

Members of the Subcommittee, you all have two more weeks for 

additional comments from Members to present questions to these 

very good witnesses. And I want to thank the Members of the Subcommittee since this will be the last hearing of this Congress. I am 

not sure who is going to be on this Committee in the next Congress. 
57 

Mr. Tonko, I have had a tremendous pleasure working with you 

during this Congress as my Ranking Member, and I appreciate 

your help. It has been great. When we see throughout Congress so 

much bipartisan—very little bipartisanship and very little mutual 

interests by Members on opposite sides of the aisle, it has been 

great working with you and working with your staff. And I thank 

the Democrat staff as well as all the Republican staff for working 

with me and with us on our side. And it has been just a tremendous blessing to me to work with you, Mr. Tonko. And I appreciate 

your being here in this situation. 

We will see what the next Congress offers as far as this Committee is concerned and look forward to where this Committee goes 

because we have a lot of things, as you know and the Committee 

knows on both sides, that we have looked at a lot of issues in this 

Congress that I am still interested in and want to continue to pursue investigation and oversight of many issues. And this is another 

one that we just absolutely I think is critical for our taxpayers, 

American citizens, and American businesses that we prevent the 

transfer of the research and development, particularly that that is 

paid for by U.S. taxpayers and that other foreign companies benefit 

from that investment by our taxpayers and then turn around and 

compete unfairly in a global market. So it is something that I am 

going to continue to be interested in. 

So thank you. I thank you, Mr. Tonko, and—— 

Mr. TONKO. Mr. Chair? 

Chairman BROUN. Mr. Tonko, you are recognized. 

Mr. TONKO. Yes, Mr. Chair, if I might. Thank you for the partnership and sincere desire to build cooperation. Your staff, too, is 

to be commended for working so well with our team. And I enjoy 

this Committee assignment and we thank you for the cooperation. 

Chairman BROUN. Well, thank you, Mr. Tonko. And a closing remark, Mr. Miller was the Chairman in the last Congress and I was 

the Ranking Member, and I just want to tell you, as you leave Congress, I am going to miss you being on this Committee and I have 

enjoyed working with you, Mr. Miller, and I wish you well in whatever endeavors that you undertake as you go back to North Carolina or whatever you do. And I wish you well and tremendous 

amount of blessings. And I wish everybody in the Committee staff 

as well as Committee Members a very Merry Christmas and happy 

holidays. 

With that, the witnesses are excused. The hearing is now adjourned. And thank you all very much. 

[Whereupon, at 11:11 a.m., the Subcommittee was adjourned.] 

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