U.S. GOVERNMENT PUBLISHING OFFICE

31–297 PDF WASHINGTON : 2018

EXAMINING THE OPERATIONS OF THE 

COMMITTEE ON FOREIGN INVESTMENT 

IN THE UNITED STATES (CFIUS) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 14, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–66 

( 

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(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

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(III) 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE

ANDY BARR, Kentucky, Chairman 

ROGER WILLIAMS, Texas, Vice Chairman 

FRANK D. LUCAS, Oklahoma 

BILL HUIZENGA, Michigan 

ROBERT PITTENGER, North Carolina 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

GWEN MOORE, Wisconsin, Ranking Member 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

BRAD SHERMAN, California 

AL GREEN, Texas 

DENNY HECK, Washington 

DANIEL T. KILDEE, Michigan 

JUAN VARGAS, California 

CHARLIE CRIST, Florida 

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C O N T E N T S 

Page 

Hearing held on: 

December 14, 2017 ........................................................................................... 1 

Appendix: 

December 14, 2017 ........................................................................................... 33 

WITNESSES 

THURSDAY, DECEMBER 14, 2017 

Estevez, Hon. Alan F., Deloitte Consulting LLP, and former Principal Deputy 

Under Secretary of Defense for Acquisition, Technology, and Logistics, Department of Defense ............................................................................................. 7 

Kimmitt, Hon. Robert M., Senior International Counsel, WilmerHale, and 

former Deputy Secretary and General Counsel, U.S. Department of the 

Treasury ................................................................................................................ 5 

McLernon, Nancy, President and Chief Executive Officer, Organization for 

International Investment .................................................................................... 11 

Segal, Adam, Ira A. Lipman Chair, Emerging Technologies and National 

Security, Director, Digital and Cyberspace Policy Program, Council on Foreign Relations ....................................................................................................... 10 

Wolf, Hon. Kevin J., Partner, Akin Gump Strass Hauer & Feld LLP, and 

former Assistant Secretary of Commerce for Export Administration, U.S. 

Department of Commerce .................................................................................... 8 

APPENDIX 

Prepared statements: 

Estevez, Hon. Alan F. ....................................................................................... 34 

Kimmitt, Hon. Robert M. ................................................................................. 38 

McLernon, Nancy ............................................................................................. 43 

Segal, Adam ...................................................................................................... 47 

Wolf, Hon. Kevin J. .......................................................................................... 55 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Pittenger, Hon. Robert: 

Written statement for the record .................................................................... 61 

Estevez, Hon. Alan F.: 

Written responses to questions for the record submitted to Representative 

Moore ............................................................................................................. 63 

Written responses to questions for the record submitted to Representative 

Barr ................................................................................................................ 65 

Written responses to questions for the record submitted to Representative 

Pittenger ........................................................................................................ 68 

Kimmitt, Hon. Robert M.: 

Written responses to questions for the record submitted to Representative 

Barr ................................................................................................................ 74 

Written responses to questions for the record submitted to Representative 

Pittenger ........................................................................................................ 75 

McLernon, Nancy: 

Written responses to questions for the record submitted to Representative 

Moore ............................................................................................................. 76 

Written responses to questions for the record submitted to Representative 

Barr ................................................................................................................ 77 

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VI 

McLernon, Nancy—Continued 

Written responses to questions for the record submitted to Representative 

Pittenger ........................................................................................................ 78 

Wolf, Hon. Kevin J.: 

Written responses to questions for the record submitted to Representative 

Moore ............................................................................................................. 81 

Written responses to questions for the record submitted to Representative 

Barr ................................................................................................................ 85 

Written responses to questions for the record submitted to Representative 

Pittenger ........................................................................................................ 92 

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EXAMINING THE OPERATIONS OF THE 

COMMITTEE ON FOREIGN INVESTMENT 

IN THE UNITED STATES (CFIUS) 

Thursday, December 14, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:09 a.m., in room 

2128, Rayburn House Office Building, Hon. Andy Barr [chairman 

of the subcommittee] presiding. 

Present: Representatives Barr, Lucas, Huizenga, Pittenger, Love, 

Hill, Emmer, Mooney, Davidson, Tenney, Hollingsworth, Foster, 

Sherman, Green, Heck, and Crist. 

Chairman BARR. The committee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the committee at any time, and all members will have 5 legislative 

days within which to submit extraneous materials to the Chair for 

inclusion in the record. This hearing is entitled ‘‘Examining the Operations of the Committee on Foreign Investment in the United 

States.’’ I now recognize myself for 5 minutes to give an opening 

statement. 

The free flow of capital is a bedrock tenet of the United States 

economy, ensuring that free flow worldwide has always been a bipartisan goal. And, to that end, I am proud to serve as Co-chair 

of the Global Investment in America Caucus, along with our colleagues Mr. Holding, Mr. Himes, and Mr. Meeks. The caucus promotes global investment in the United States economy, and helps 

educate members about the importance of foreign direct investment. Today, the United States is both the largest foreign investor, 

and the recipient of the greatest amount of foreign direct investment. 

That capital has provided a good deal of the energy that has kept 

our economy vibrant, compensating, to some extent, for our notoriously low national savings rate to provide the fuel for growth of 

U.S. businesses and jobs. Today, almost 5 percent of U.S. workers 

and jobs are related to foreign investment. Most of these jobs pay 

handsomely, far better, on average, than other U.S. jobs. But, if 

foreign investment is to be a force for good, it must not be welcomed unthinkingly any more than one might leave the front door 

of a house open around the clock. Investment that might weaken 

us is not good or welcome investment, and we must guard against 

it. That investment might come for purely economic reasons. But 

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especially in this era of international turmoil, conflict, and economic uncertainty, it can also come from individuals or nationstates that might wish to weaken our economy in comparison to 

theirs, or try to spirit away technology or know-how that could 

strengthen their military to gain an advantage over ours. 

To maintain a vigilant watch on investment, the multi-agency 

Committee on Foreign Investment in the United States, or CFIUS, 

reviews many inbound investments to determine if they pose a 

threat to national security. This involves rigorous scrutiny of proposals by all appropriate departments or agencies, including a 

scrub by the intelligence community. And the President has the 

power to block transactions, or order divestments, if such concerns 

cannot be mitigated by a change in the original proposal. 

Today, we face new threats on a number of fronts, not just the 

threat of a hollowed-out industrial sector, but also from terrorism 

and from major nations that are economic competitors, but also potential military competitors. I am referring, of course, mainly, to 

China. Concerns have risen sharply in the past years about Chinese companies using that country’s vast financial reserves to acquire key technology with an eye toward taking the lead in the industrial markets of the future. The Chinese Government, for example, has set aside $250 billion to be used in dominating the vital 

semiconductor market. This is not a new phenomenon, but just a 

new challenger. 

President Ford set up CFIUS in 1975 out of concern that the 

vast inflows coming from OPEC countries could weaken our economy. In 1988, among concerns that Japan was seeking to buy critical technology, Congress gave President Reagan the authority to 

actually block deals. That authority only has been used sparingly. 

Interestingly, the first use came when President George H.W. Bush 

blocked the sale of an airplane component maker to a Chinese company. 

More recently, President Obama, just before he left office, 

blocked a Chinese deal, and President Trump already has blocked 

the proposed purchase of lattice semiconductors by a Chinese company. 

CFIUS has also approved foreign direct investment conditionally, 

approving a deal only when divestment of divisions with sensitive 

technologies or activities has occurred. But the statute under which 

CFIUS operates has not been updated in a decade, and, clearly, we 

should think about modernizing it. Aside from China’s intentions, 

there are burdens on the CFIUS process from the volume and complexity of proposed deals. There were about 40 percent more reviews in 2017 than 2016, and a more than fourfold expansion in 

the number of Chinese-backed deals just since 2013. 

To that end, our colleague, Representative Pittenger and Senator 

Cornyn, have spent more than a year studying the CFIUS process 

and considering possible reforms. I commend their work. 

This hearing is the beginning of the committee’s study of CFIUS 

and will be followed by further hearings soon. In considering any 

reforms, the committee will seek to ensure that CFIUS has the 

tools and resources it needs to examine foreign investment. As 

Members of Congress, it is our duty to advance the national security of the United States. At the same time, we must aspire, to the 

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greatest extent possible, a welcoming investment climate so that 

U.S. companies have the capital needed to grow. As well, we need 

to be mindful that the investment climate for U.S. companies overseas is not unnecessarily compromised. 

To start that process, today the subcommittee has a panel of witnesses with unique abilities to discuss the operations of and challenges that CFIUS faces. This hearing and their testimony is intended to prepare members to make wise and cautious decisions on 

this vital topic. This should provide the beginning of a strong and 

thoughtful review. 

With that, I would now recognize a member of the Democratic 

side, the gentleman from Washington, Mr. Heck, for 5 minutes for 

an opening statement. 

Mr. HECK. Thank you very much, Mr. Chairman. And, Mr. 

Chairman, to begin with, I would ask unanimous consent to enter 

into the record a letter I sent to you and the Chairman of the full 

committee on December 8 requesting that a witness from the Department of Treasury be added to this hearing. 

Chairman BARR. Without objection. 

Mr. HECK. Thank you. 

While I look forward to hearing from today’s witnesses, I believe, 

frankly, there is no substitute for hearing from people who actually 

are administering CFIUS. I have given Treasury a very hard time 

in this committee—some of you may recall it was a very hard 

time—about this issue in past hearings. I want to make clear that 

they have begun to engage in what I would characterize as a constructive manner. I acknowledge that and express my hope that 

the committee could benefit from their expertise during a future 

hearing. I would be happy to yield to Chairman Barr if he would 

like to respond. 

Chairman BARR. Yes. I appreciate the gentleman yielding. And 

just to clarify, this is the first of a series of hearings. We most certainly will be extending an invitation to Treasury officials who obviously have a large role in the CFIUS process to testify, and you 

will have that opportunity. I yield back. 

Mr. HECK. Again, thank you very much, Mr. Chairman. I am 

glad to hear that, and I thank you, again, for convening this hearing. 

I believe the CFIUS process generally works well for private, 

commercially motivated transactions. But in the 10 years since 

Congress last passed legislation dealing with this issue, we have 

seen some countries gain the resources and sophistication needed 

to pursue a comprehensive strategy to acquire U.S. technology, or 

dominate strategically important industries. Existing CFIUS authorities were not designed and are not sufficient to deal with that 

kind of challenge. And although, as many of our witnesses will 

note, this is a problem that every part of the U.S. Government will 

have to work together to address. I believe there are some aspects 

of this problem that can only be addressed through legislative action to close gaps in existing CFIUS authority. 

When I asked Secretary Mnuchin about this in July, he agreed 

that this was a pressing issue, and that we could not afford to do 

nothing. I hope we can all bring that sense of urgency to how this 

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gency and unity which I know this Congress can still bring to bear 

on issues critical to our national security, because here we are dealing with just such an issue. 

And there are certainly things we need to keep in mind as we 

move forward. I am glad many of today’s witnesses have raised 

issues, will raise issues like the need to improve information sharing and cooperation with our allies and partners, many of whom 

are also in the process of reevaluating their own CFIUS equivalents. I am glad many of today’s witnesses will raise the need to 

provide more resources to CFIUS, which I agree are urgently needed to keep pace with the times, and the demand, and the need. And 

I am proud that the United States is, in fact, a place that welcomes 

foreign investment. 

But the broader legitimacy and acceptance of that principle of 

openness, which I believe in, and the ability of the United States 

to stand up for a free and open global economy, is, in fact, dependent on our national security. As Secretary Mnuchin affirmed, doing 

nothing is not an option. But I am confident that starting with this 

hearing, we can find a bipartisan path forward, and strike that balance between continuing to allow robust foreign investment, which 

I think does serve our Nation’s needs, our economic prospects, 

while at the same time, balancing it against very legitimate security concerns, which are growing in number, in velocity, and in 

complexity. 

CFIUS needs to be reformed. It starts here with this committee, 

and it starts here with this hearing today, Mr. Chairman. So, finally, thank you, again, very much, for convening it. 

Chairman BARR. Thank you. The gentleman yields back. 

And today we welcome the testimony of the Honorable Mr. 

Kimmitt, a Senior International Counsel at WilmerHale. From 

2005 to 2009, he served as Deputy Secretary of the U.S. Treasury, 

where he had significant responsibility for the Department’s international agenda, which included a revamp of CFIUS. He also 

served in the Reagan White House as National Security Council 

Executive Secretary and General Counsel from 1983 to 1985. During 1997, Mr. Kimmitt was a member of the National Defense 

Panel, and from 1998 to 2005, he was a member of the Director of 

Central Intelligence National Security Advisory Panel. 

Mr. Kimmitt served in combat in Vietnam with the 173rd Airborne Brigade, retired as a major general in the Army Reserve, and 

also served as the U.S. Ambassador to Germany. 

The Honorable Mr. Estevez is a national security strategy and logistics executive at Deloitte Consulting, who served for 36 years at 

the Department of Defense. From 2013 to January 2017, Mr. 

Estevez served as the Principal Deputy Under Secretary of Defense 

Acquisition Technology and Logistics. In this position, he represented the Department of Defense at CFIUS while Chinese investment in the United States accelerated rapidly. Previously, he 

held several key positions, including Assistant Secretary of Defense 

for Logistics and Materiel Readiness and Assistant Deputy Under 

Secretary of Defense for supply chain integration. 

The Honorable Mr. Wolf is a partner at Akin Gump, and from 

2010 to January 2017, he was the Assistant Secretary of Commerce 

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5 

sible for the policy and administration of the U.S. dual-use Export 

Control System. And as a result of the export control reform effort, 

he helped lead part of the defense trade system. Also during this 

time, Mr. Wolf was the primary Commerce Department representative to CFIUS. 

Mr. Segal is the Ira A. Lipman Chair in Emerging Technologies 

and National Security and Director of the Digital and Cyberspace 

Policy Program at the Council on Foreign Relations, an expert on 

security issues, technology development, and Chinese domestic and 

foreign policy. Before coming to CFR, Segal was an arms control 

analyst for the China Project at the Union of Concerned Scientists. 

He has been a visiting scholar at the Hoover Institution at Stanford University, the Massachusetts Institute of Technologies Center 

for International Studies, the Shanghai Academy of Social 

Sciences, and Tsinghua University in Beijing. 

Ms. McLernon is President and CEO of the Organization for 

International Investment, an association representing the unique 

interests of U.S. subsidiaries of global companies. With a strong 

background in economics, her efforts focus on the important role 

U.S. subsidiaries play in the American economy and policy issues 

that would make the U.S. a more competitive location for foreign 

direct investment and job creation. 

Prior to being named President and CEO, Ms. McLernon was 

OFII’s Senior Vice President, where she focused on strategic communications and advocacy. Each of you will be recognized for 5 

minutes to give an oral presentation of your testimony. And, without objection, each of your written statements will be made part of 

the record. 

The Honorable Mr. Kimmitt, you are now recognized for 5 minutes. 

STATEMENT OF HON. ROBERT M. KIMMITT 

Mr. KIMMITT. Thank you, Mr. Chairman, members of the subcommittee. Thank you for your invitation to offer perspective on 

the Committee on Foreign Investment in the U.S. This is one of 

those rare instances where advancing age, including three decades 

of service on CFIUS, has some benefits. 

My experience with CFIUS began in 1985 as Treasury General 

Counsel under President Reagan and Secretary Baker. As you 

noted, Mr. Chairman, CFIUS was then governed by an Executive 

Order signed in 1975 by President Ford because of concern about 

Saudi petrol dollars being recycled to buy American assets. 

By 1988, concern had shifted to Japanese purchases, which lead 

to passage of the Exon-Florio amendment. And in 1992, concern 

about state-owned companies buying sensitive U.S. technologies 

lead to passage of the Byrd amendment. 

In 2005, I returned to Treasury as Deputy Secretary. After deals 

involving the Chinese National Overseas Oil Company and Dubai 

Ports were blocked by Congressional concerns, Congress passed the 

Foreign Investment and National Security Act of 2007. 

Today, growing concern about Chinese investment, particularly 

by state-owned enterprises, and especially in the technology sector, 

has led to legislation proposed by Congressman Pittenger, Senator 

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Cornyn, and bipartisan cosponsors. I would like to offer some observations that may assist in your deliberations. 

Earlier this year, this committee helped legislate the Secretary 

of the Treasury as a statutory member of the National Security 

Council, demonstrating that U.S. economic strength is tightly 

linked to our overall security. And foreign direct investment (FDI), 

as both you and Mr. Heck have noted, Mr. Chairman, makes an 

important contribution to the U.S. economy. Almost 7 million 

Americans will receive their paychecks this month from companies 

headquartered overseas. Close to 40 percent of those workers are 

in manufacturing jobs. And, as you noted, FDI jobs pay about 25 

percent more than the economy-wide average. 

A more open investment policy is integral to U.S. economic success, and I urge President Trump to issue the traditional U.S. open 

investment policy statement at the earliest opportunity. But in 

issuing that statement, it is important to make clear that the U.S. 

Government must ensure foreign investment does not harm U.S. 

national security interests. 

Chinese investment has an appropriately high priority for close 

scrutiny, because China seeks to compete strategically against the 

United States in multiple spheres: Military, diplomatic, and economic, using all elements of the state, including state-owned enterprises in that competition. Current legislation provides significant 

authority to block troublesome Chinese acquisitions. As you noted, 

Mr. Chairman, the first acquisition unwound by a President was 

under George H.W. Bush in 1990. Huawei’s acquisition of 3Com did 

not proceed under President George W. Bush, and President Trump 

recently blocked the acquisition of Lattice Semiconductor by a Chinese investment group. 

As you consider new legislation, then, I would be sure to address 

actual gaps in existing authority. There is particular concern the 

Chinese companies may be using creative legal structures to conclude deals short of ownership and control that could nonetheless 

impair U.S. national security. I believe this is a very valid area of 

stricter scrutiny in the United States. I would be careful, however, 

about extending CFIUS’ reach to transactions occurring outside the 

United States. 

CFIUS is intended to give the President exceptional authority to 

protect the United States without, however, superseding important 

authorities in other statutes. For example, if a joint venture abroad 

raises concerns about technology transfer or compromise, the export administration regulations, or international traffic in arms 

regulations, should be the first line of defense. 

Although additional legislative authority is warranted, the greatest problem facing CFIUS today is a lack of resources. As cases 

filed before CFIUS climbed to 250 this year, and with the prospect 

that CFIUS agencies lead by Treasury could be involved next year 

in a major legislative and regulatory implementation exercise, the 

increase in workload may begin to delay jobs-producing investments that do not raise national security concerns. 

I urge that matching requirements to resources continue to be a 

central point in your further deliberations. Today’s hearing, and 

your future actions, are also being watched closely overseas. Of 

particular concern, the European Commission (EC) in Brussels is 

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establishing an investment review mechanism even though, under 

European law, the Commission has no authority or jurisdiction on 

national security matters. So the new EC review may become a political screening process that could create a new barrier to U.S. investment into that important market of over 300 million consumers. 

In conclusion, I am more concerned today about growing investment protectionism than trade protectionism. If we want to grow 

well-paying jobs in the United States through foreign direct investment, we must send a clear message that the United States is open 

to investment except in those instances where a CFIUS process focused squarely on national security determines an investment must 

be blocked. I know you will strive to strike that important balance. 

Thank you. 

[The prepared statement of Mr. Kimmitt can be found on page 

38 of the Appendix] 

Chairman BARR. Thank you. The gentleman’s time has expired. 

STATEMENT OF HON. ALAN F. ESTEVEZ 

The Honorable Mr. Estevez, you are now recognized for 5 minutes. 

Mr. ESTEVEZ. Chairman Barr, distinguished members of the committee, thank you for the opportunity to appear before you today 

and discuss the Committee on Foreign Investment in the United 

States, or CFIUS. While I am now at Deloitte, I do want to be clear 

that my views today are my own views, not those of my firm. 

I believe it is important to review while CFIUS is critical to the 

national security from the DoD perspective. There are many reasons that the United States has the finest military in the world, 

most importantly, the men and women who volunteer to join that 

force. However, another reason is the technological superiority of 

our military force that we have over our adversaries. CFIUS is one 

of the tools that helps our military retain its technological advantage. Based on my experience, the CFIUS interagency process not 

only worked, it worked well in protecting national security of the 

United States for those cases that CFIUS had jurisdiction over. I 

never signed off, nor did I ever ask the Deputy Secretary of Defense to sign off, on a CFIUS case resolution that, in any way, 

would imperil national security. The DoD always achieved the mitigation terms that we asked for or received committee support to 

propose a block for those cases in which mitigation was too risky. 

When I assessed the national security risk involved in each 

CFIUS transaction, I used the construct which I called the three 

C’s, plus one. The C’s represent the country, company, and commodity, commodity including technology. The plus one was co-location. That is when a foreign company was buying a company that 

was located near a sensitive military installation. 

The framework worked like this: For country, we assessed if the 

home country of the purchasing party was a potential adversary of 

the United States, or if the country was lax in its protection of 

technology or personally identifiable information. 

In assessing companies, we would determine if the company was 

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8 

ated for that specific deal, or if the company or its ownership was 

reliable and stable. 

To assess commodities or technology, we would review the criticality of those technologies to DoD weapons systems, both current 

and future, how cutting edge the technology was, and whether the 

technology was already globally available. 

In co-location cases, we would assess what activities were taking 

place at a given location and whether the purchasing party would 

be able to observe or impact those activities. 

If we had concerns with two or more of those C’s, my experience 

was that such cases were heading to mitigation, at a minimum, or 

potentially a block. 

I would like to now turn to areas where I believe CFIUS needs 

expanded authorities. I recognize that there are proposals currently 

being reviewed by Congress. My comments aren’t based on that 

specific piece of legislation. The first area is joint ventures. While 

the vast majority of joint ventures do not threaten national security, some joint ventures may put national security at risk through 

technology or intellectual property transfer. Bankruptcy is another 

area where I believe we need to expand CFIUS authorities. Bankruptcies of U.S. companies, especially those involved in cuttingedge technologies, could end in the sale of technology or intellectual 

property assets to countries or companies of concern. 

The final area I believe we need to assess with regard to CFIUS 

authorities is what I call connecting the dots. During my time as 

the DoD CFIUS representative, we noticed trends in which specific 

countries and companies were engaged in multiple transactions involving industry segments. 

Most times, the companies and technologies being purchased 

were relatively small. They were not State-of-the-art, and they 

were not critical to national security. Nonetheless, I believe there 

comes a point where too much of a particular industry segment is 

under foreign control and this may put national security at risk. 

The last area I would like to address is resources. The reality is 

just to process, manage, and mitigate the cases in the current 

workload, CFIUS needs more resources. The cases coming before 

the committee are growing in their complexity. Resources are needed to adequately perform the due diligence on the cases, to radically assess unfiled transactions, and to radically perform mitigation and oversight. 

I thank the committee for holding this hearing. This is a critical 

topic for continuing long-term viability of our technical superiority. 

I look forward to your questions. 

[The prepared statement of Mr. Estevez can be found on page 34 

of the Appendix] 

Chairman BARR. Thank you. The gentleman yields back. 

The Honorable Mr. Wolf, you are now recognized for 5 minutes. 

STATEMENT OF HON. KEVIN J. WOLF 

Mr. WOLF. Thank you, Chairman, other members, for inviting me 

and holding this hearing on a very important topic. Although I am 

now a partner at Akin Gump, also my views are my own. I am not 

speaking for or against any particular legislation. Rather, I am 

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9 

port Control System worked. I am also not going to speak about 

any case that Alan or I or others worked on or that is before 

CFIUS now. 

The other panelists have already described very well how CFIUS 

works, and we will get into that. So I want to get straight to my 

main point, which is that CFIUS and the Export Control System 

complement one another. CFIUS has the authority to control, and 

regulate, and block the transfer of national—technology of national 

security concerns if there is a transaction however defined. The Export Control System, the very purpose of the Export Control System, is to regulate the transfer of technology, regardless of whether 

there is an underlying transaction. This means that if specific concerns arise with respect to any particular type of technology, 

whether it is part of a CFIUS review or any other activity of U.S. 

Government, that the Export Control System, the rules governing 

the flow of goods, technology, software, and services out of the 

United States, should and could control that technology of concern 

to specific destinations, specific end users, and specific end uses. 

Now, I realize that identifying, describing that technology, particularly dual U.S. technology that has both benign commercial applications, as well as military and other applications, is complex. I 

also realize that the Export Control System itself is very complex. 

However, the system is designed, it was created, to constantly 

evolve to address new threats, new technologies, new issues, new 

end users of concern. In particular, the export administration regulations at the Bureau of Industry and Security, where I was for the 

previous 8 years, has the authority to impose these controls and 

alter them in coordination with, largely, the Departments of Defense, State, and Commerce. The descriptions of technology can be 

as broad or narrow as the concern arises. The scope of the controls 

can apply to specific entities, or entire countries, or they can apply 

to particular end users and end uses. 

Most of the export administration regulations implement multilateral controls that are controls that are agreed to by between 30 

and 40 other allied countries with similar concerns. And this is a 

reflection of the fact that multi-lateral controls, controls that our 

allies all work on together, are the most effective because they 

achieve a common objective. 

It is also a reflection of the understanding that unilateral controls, controls that are imposed only by one country, generally tend 

to be counterproductive, because they result only in harming the 

industry of a country imposing the controls and don’t actually 

block, in the end, the technology to the country of concern. 

So recognizing these two competing structures, and recognizing 

that the multi-lateral system can move very slowly because it is a 

need for consensus with our allies to decide which technologies to 

impose, we created, during my time, a unilateral process to be able 

to tag and identify sensitive technologies of control unilaterally in 

order to be able to address the threat quickly and tailor it to whatever the concern is on the condition that eventually, it gets presented to the multilateral regimes for controls there. 

There are many additional tools in the export administration regulations that can be tailored, such as a process of informing particular companies about particular technologies and particular end 

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10 

users, again, regardless of whether there is an underlying transaction that there is technology of particular concern. 

I focused in my comments here in the first 4 minutes on just 

technology transfer issues. But with respect to CFIUS, you also 

need to keep in mind that the national security issues we looked 

at are co-location issues, transactions involving those that create 

espionage or cybersecurity vulnerabilities, those that could reduce 

the benefit of U.S. Government investments, transactions that 

would reveal personally identifying information, those that would 

create security of supply issues for the Defense Department and 

other Government agencies, those that would implicate law enforcement issues, and those that would create exposure for their 

critical infrastructure such as telecommunications. Each one of 

these individual topics has their own issues and warrants their 

own hearing. So I am here because I have a 3-minute, and a 30- 

minute, and a 3-hour, and a 3-day version. I will stop here with 

the 5-minute version and be available for your questions over the 

course of the hearing. Thank you for inviting us. 

[The prepared statement of Mr. Wolf can be found on page 55 of 

the Appendix] 

Chairman BARR. Thank you, Mr. Wolf. 

Mr. Segal, you are now recognized for 5 minutes. 

STATEMENT OF ADAM SEGAL 

Mr. SEGAL. Chairman Barr, Ranking Member, members of the 

committee, thank you for inviting me here today. My purpose is to 

provide a context for Chinese activities and what the motivations 

and challenges might be. I am going to make three points. The first 

is that China has a comprehensive strategy to move up the value 

chain and develop high technologies for national security and economic interests. That strategy involves many parts. It involves increased investments in R&D and in science and technology, industrial policy, and, in particular, policies focused on semiconductors, 

artificial intelligence, and what is called Made in China 2025, 

which is the use of the Internet of things and automation in manufacturing. It has its own foreign investment regime, which forces 

foreign companies to transfer technology, and fails to protect IPR, 

and is involved in cyber and industrial espionage, and then, finally, 

is involved in foreign acquisitions. 

So can it acquire those technologies in the United States, Europe, 

India, Israel, and other locations? The policy that China has adopted is broad and comprehensive, and any U.S. response will similarly have to be broad and comprehensive. 

Second, as a number of people have already noted, the investment decisions behind Chinese firms is often opaque. Who the actors are is opaque. They may say that they are private. They may, 

in fact, be private, but still receive significant support from stateowned enterprises. They may have tight connections to local or provincial governments. And so, the sources of the money and the motivations of that money are often unclear. They may be strategic. 

They may be economic. They may be hiding money from a corruption scandal. 

The problem is compounded by the fact that President Xi Jinping 

has accelerated a process that was started under President Hu 

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11 

Jintao of civil military fusion. And that goal is to tightly link the 

civilian and military economies so that any benefits that are 

brought to the civilian economy are eventually turned into military 

strength as well. And so that means that in this context, any advantage that is brought to the civilian economy could also be 

brought to the military economy. 

Third and final, while I support many of the specific reforms that 

have been mentioned about increased capacity, increased information sharing, and other points for CFIUS, it is extremely important 

to point out that the U.S. and Chinese technology platforms and 

systems are increasingly integrated. We have seen that in information technologies where it is very, very hard to draw a line between 

where China starts and where the United States starts. We see a 

massive flow of people back and forth. We see co-investment. 

We see a huge amount of co-research and co-writing of research 

papers. When Chinese scientists look for co-authors, they look to 

the United States. Over 40 percent are U.S. authors. And this pattern is going to be reproduced in these new areas of frontier technology. 

So we already see this in AI, in artificial intelligence, that the 

two systems, although right now are often cast as competitors, as 

running a race against each other, they are going to be tightly integrated. And Google’s announcement yesterday that it was setting 

up an R&D center inside China is just the most recent example of 

how tightly linked those systems are going to be. That means that 

for any type of either export control law or CFIUS reform, there 

is a high degree of chance that we could, in fact, hurt ourselves, 

that we would be affecting science and technology that feeds back 

into the U.S. system that drives U.S. companies and drives U.S. innovation. 

Thank you very much, and I look forward to your questions. 

[The prepared statement of Mr. Segal can be found on page 47 

of the Appendix] 

Chairman BARR. The gentleman yields back. 

Ms. McLernon, you are now recognized for 5 minutes. 

STATEMENT OF NANCY MCLERNON 

Ms. MCLERNON. Chairman Barr, Ranking Member Moore, and 

other distinguished members of the subcommittee, thank you for 

your invitation to testify this morning. I am Nancy McLernon, and 

I have the pleasure of being the President and CEO of the Organization for International Investment, OFII, the only business association exclusively comprised of U.S. subsidiaries of international 

companies. Our members represent a wide variety of industries 

from companies headquartered all over the world, including Siemens, Lego, Samsung, and BAE. I applaud this subcommittee’s effort to take the time to examine the economic importance of foreign 

direct investment to America’s economy, and the effectiveness of 

the CFIUS process. 

OFII’s mission is to ensure the United States remains the most 

attractive destination for foreign direct investment due to the outsized impact it has on the economy and work force. 6.8 million 

workers in the United States take home a paycheck from an international company, including 20 percent of the U.S. manufacturing 

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12 

work force offering 24 percent higher compensation than the economy-wide average. And somewhat counterintuitively, international 

companies manufacture in the U.S. not just for our consumption, 

but also for worldwide consumption. In fact, U.S. workers at international companies produce about 25 percent of all U.S. exports. 

International companies are also tied to their communities. They 

provide world-class training and—world-class work force training 

and help strengthen the communities in which they sustainably operate. For example, Toyota, whose Kentucky plant is the largest 

manufacturing facility in the world, is applying its manufacturing 

know-how to help children’s hospital reduce infection rates with a 

neonatal intensive care unit, decreasing infection rates by 80 percent. Think about it, a Japanese company, in Kentucky, the largest 

manufacturing facility they have in the world. 

Historically, the vast majority of FDI flows into the United 

States through mergers and acquisitions in line with other advanced economies. And the vast majority of that cross-border investment flows into industries totally unrelated to national security. For example, Loreal’s successes have been achieved by their 

strategic acquisitions here. They have expanded their footprint in 

the United States to include research, manufacturing, and distribution facilities across 13 States. In fact, I recently had the opportunity to go out to a facility in Little Rock, Arkansas that was the 

result of an acquisition of a Maybelline facility. Now that facility 

is the largest cosmetic manufacturing facility in the world in Little 

Rock, Arkansas, a French company manufacturing for consumers 

all around the world. 

Indeed, examples like Loreal demonstrate that when global companies acquire or merge with U.S. companies, they often raise the 

industry’s economic performance, become reliable commercial and 

investor anchors, making large capital investments, and reinvesting U.S. earnings into their operations here. Without cross-border M&A (mergers and acquisitions), our economy would not receive the full benefits that international companies provide. A critical factor in the attraction of the U.S. to foreign investors is our 

country’s commitment to the rule of law, and the stability of the 

regulatory environment. FINSA (Foreign Investment and National 

Security Act), as was mentioned earlier, the result of extensive deliberations in Congress, laid the foundation for success. Importantly, during 2008, Congress engaged in an equally thoughtful 

process to implement FINSA. The resulting regulations carefully 

captured the balance that Congress sought, providing helpful guidance on the kind of transactions that are within the purview of 

CFIUS and the wide range of factors relevant to national security 

assessments. 

Based on publicly available information and anecdotal experience 

of OFII members, it seems clear the CFIUS process is under stress. 

There appears to be more investigations and mitigation agreements, withdrawals of cases, and a lengthening period for resolution. Our members report that although CFIUS staff members continue to impress with their long hours and attention to unique circumstances, resource constraints are straining CFIUS’ ability to 

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13 

eign-owned bidders in an M&A auction process, potentially forcing 

them to pay a premium. 

But let me underscore that the international business community 

supports the efforts of CFIUS to ensure America remains safe, and 

we are in full agreement national security should be paramount. 

Yet, I caution that CFIUS should not be viewed as a panacea to 

address all the concerns that have been raised. The Government 

has a wide variety of tools at its disposal, ensuring fairness, predictability, and efficiency in national security reviews must remain 

the tenets of the CFIUS process. Any changes to the process need 

to be done thoughtfully with the full awareness of the economic 

states. 

Once again, thank you, Mr. Chairman, I look forward to answering your questions. 

[The prepared statement of Ms. McLernon can be found on page 

43 of the Appendix] 

Chairman BARR. Thank you. 

The Chair now recognizes himself for 5 minutes for questioning. 

I appreciate the witnesses’ outstanding testimony, very illuminating and educational. 

Mr. Kimmitt, let me start with you because of your background 

in the development and evolution of CFIUS and your expertise. Obviously, as Ms. McLernon was pointing out, foreign direct investment is critical to the U.S. economy. She mentioned Toyota in Kentucky. But in my home State of Kentucky, foreign direct investment supports 117,000 jobs, a little more than 7 percent of the entire employment. 

At the same time, as many of the witnesses pointed out here 

today, national security of our country is of critical importance. 

And FDI, if not carefully watched, could enable our enemies to inflict harm not just on our economy, but create a whole lot of national security concerns. And I will just quote the U.S.-China Economic and Security Review Commission, ‘‘China appears to be conducting a campaign of commercial espionage against U.S. companies involving a combination of cyber espionage and human infiltration to systematically penetrate the information systems of U.S. 

companies to steal their intellectual property, devalue them, and 

acquire them at dramatically reduced prices.’’ The central question 

of this hearing is, how can we balance both the desire for strong 

foreign investment and strong national security? And can you give 

us a little bit of guidance on that? 

Mr. KIMMITT. Mr. Chairman, I think you put your finger on it 

just precisely: Striking that balance that not only you as a subcommittee and committee seek to do, but really, what the members 

of the Administration do on a daily basis. I think it is important 

to reiterate that the U.S. is open to investment for the reasons that 

you and others have mentioned. At the same time, no one serving 

in public office has a higher responsibility than protecting the national security. I think we start out from the point of view that we 

are looking for ways to attract good, high-paying FDI jobs to the 

United States. Appearing before this committee now almost 30 

years ago, my then boss, Jim Baker, said that foreign direct investment was our ace-in-the-hole. As Nancy said, it is foreign companies deciding that our marketplace, our system, and our workers 

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14 

are worth that investment. I think that is where we start. But that 

is not where we end. We have to look precisely at those security 

considerations you mentioned. 

And I think today, unlike past concerns—the Saudis, perhaps the 

Japanese—we are talking about someone who not only wants to be 

a peer competitor, but a peer winner against the United States. 

That is China. And we have to look at Chinese investment particularly closely. That doesn’t exclude that there could be Chinese investment that does not raise national security concerns. It doesn’t 

exclude that there could be Chinese investment that needs to be 

regulated or looked at by others. But I think, again, we start with 

the point of view that we want to attract that investment, but not 

at the cost of harming U.S. national security. 

Chairman BARR. And, Ms. McLernon, what interests me about 

this issue is why there are not robust—sufficiently robust capital 

markets in the United States to provide alternative sources of capital for startups, or for mature companies in financial distress. Is 

there an alternative to foreign direct investment? And why do we 

not have strong enough capital markets in the United States to 

provide that capital as an alternative to a Chinese entity? 

Ms. MCLERNON. Yes. Well, I would start with the fact that we 

don’t want to close—we don’t want to close our borders to foreign 

direct investment, right? So even if there was a way to try to figure 

out how to fund through our capital markets here, we don’t have 

all the answers. And foreign companies, when they come to the 

United States, they don’t just bring capital. They bring innovation. 

They bring world-class work force training, as I mentioned. They 

bring new ways to do things. We have seen that in the auto sector, 

right? 

So I don’t think that it would be a desire to wall us off and think 

that we have all the smarts, and we can have all the answers if 

we just contain it here. And the reason why we don’t—we have had 

many people on the panel, and you yourself talked about the amazing benefits that foreign direct investment mean to the U.S. economy and to the workforce. So I wouldn’t even think that would be 

a goal. 

Chairman BARR. In the remaining time, Mr. Estevez, observers 

have said that the CFIUS process offers the view that other committee members somehow rolled the Pentagon on a decision or that 

the brass at the Pentagon somehow caved to outside influences and 

ignored input from Pentagon staff. Can you elaborate on that? 

Mr. ESTEVEZ. I will. I don’t think that is true. Inside the Pentagon—when I looked at a case, we brought in all the pertinent 

parties from the breadth of the Pentagon, there were military services, key agencies like National Security Agency, who have concerns on cyber cases, for example. And I always got the signoff at 

the senior leadership level. We always went into a case looking to 

say—I believe in foreign direct investment too. And we need to 

have that flow of capital, and we need the innovation that that 

brings. But I always wanted to make sure that we were protecting 

national security in doing that. And we brought the full gamut of 

the Pentagon resources when we examined a case. My three C’s 

construct—China was always a case that we looked at regardless 

of the next step. And then when we went to the committee, I had 

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15 

to make the case. I could never say that the committee rolled me 

against. I was pretty far in my discussions— 

Chairman BARR. Thank you. Thank you. 

Mr. ESTEVEZ. —as Mr. Wolf would tell you. 

Chairman BARR. My time has expired. Well, more than expired. 

I appreciate members’ indulgence. 

And now I would like to recognize the gentleman from North 

Carolina, Mr. Pittenger. And I would just note not only is Mr. 

Pittenger the author of the Foreign Investment Risk Review Modernization Act, he is also the author of the legislation that made 

the Treasury Secretary a member of the National Security Council. 

And, with that, I yield to my friend from North Carolina, and applaud his leadership on this issue. 

Mr. PITTENGER. Thank you, Chairman Barr. Thank you for your 

commitment and leadership. And thank each of you for being with 

us today and your expertise and background. I would say, too, I am 

from North Carolina. We have the largest hog processing plant in 

the world in my district owned by the Chinese, Smithfield, 5,000 

jobs. 

Right across the border from me is a big textile plant owned by 

the Chinese. So I have a real interest in Chinese investments, foreign investments of all kinds. I have a great appreciation for that. 

Having said that, I certainly read the statement by President Xi 

regarding his clear vision for China, his 5-year plan to acquire, aggressively acquire, technology companies. They have been pretty focused on that since 2014. I think they have acquired 43 semiconductor companies, 20 of which have been in the United States. 

To that end, it brings us enormous concern. And I think those 

concerns are shared by many other leaders who support our interest in reform of CFIUS. I would read you a few of them. 

Attorney General Jeff Sessions says, ‘‘CFIUS is not able to be effective enough. Your legislation is first rate. We think it has great 

potential to push back against the abuses and dangers we face.’’ 

Secretary Mattis, ‘‘CFIUS is outdated. It needs to be updated to 

deal with today’s situation.’’ 

Director Coats, ‘‘We should do a significant review of the current 

CFIUS situation to bring it up to speed.’’ 

Admiral Rogers, NSA Director, ‘‘We need to assess the CFIUS 

process and make sure it is optimized for the world of today and 

tomorrow. 

Does anyone disagree with those perspectives? 

Thank you for that. 

With that in mind, I would like to just ask you, Mr. Wolf—and 

thank you for your service. Again, you served as Assistant Secretary of Commerce for Export Administration. At that time, you 

were involved in providing relief in the arms embargo that the U.S. 

and EU had imposed in 1999, following the Tiananmen massacre. 

These efforts in export controls reduce—enabled through President 

Obama’s Export Control Reform Initiative lead to a massive Chinese military modernization effort. And, of course, today the U.S. 

military faces a far more capable PLA because, frankly, I believe, 

of these efforts. 

Under the same tenure that you had, it took half a decade to 

punish the Chinese for the actions by ZTE in selling what we have 

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in technology to North Korea and Iran. I worked on this. Ultimately, they were fined $1 billion. But it took a long time to get 

that done. 

And I would just like to know from you how credible you believe 

you can be as a witness on this CFIUS process given the lapse and 

what has occurred through the time of your tenure. 

Mr. WOLF. Thank you for the question. 

With respect to the ZTE case, that was 2 years of my life pursuing the matter. And I was the one that signed the denial order 

in pursuing it. So I think we were actually extraordinarily aggressive with respect to that matter, and the record speaks for itself. 

With respect to the export control reform effort, with all due respect, we did exactly the opposite with respect to China. The whole 

point of the reform effort was to make it easier with respect to 

trade with our close allies, NATO in particular, so that we would 

have more resources in order to focus enforcement attention and to 

strengthen the embargo with respect to China. 

Mr. PITTENGER. The net effect, though, was that it provided the 

Chinese access and greater capability as a result of what occurred 

and did not occur. 

I would like to clarify for this committee what we intend not to 

do in the bill. The bill does not impose a ban, or automatically 

block all Chinese investments or that being of any other country. 

It does not require CFIUS to consider investment reciprocity as 

part of this bill. It does not cover all joint ventures. Joint ventures 

are a concern, but it does not cover all of them. It does not require 

any list of countries of special concern. No country is named in this 

bill. 

It does not require any list of technologies or duplicate functions 

performed by the Export Control System. And it does not designate 

specific technologies that are to be safeguarded. 

So I think there has been prudent consideration for what needs 

to be done and what should not be done. But I would convey to this 

committee and to each of you that without this type of clear focus 

and commitment, America’s interests will be greatly threatened. 

I yield back my time. My time is gone. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the distinguished gentleman from Arkansas, an outstanding member of the committee, Mr. Hill. 

Mr. HILL. I thank the Chairman. I appreciate our witnesses 

being with us today. Thanks for the effort to start this process, Mr. 

Barr, in evaluating how we adjust CFIUS’ resource needs on behalf 

of the Administration, as well as balance the new challenges to our 

country. And I appreciate my friend from North Carolina taking a 

leadership role in the topic as well. 

I would like to explore the issue, maybe starting with you, Ambassador Kimmitt, talking about the challenges of licensing technology as opposed to outright acquisition of it. Could you reflect on 

that and how that gets reviewed in the process? 

Mr. KIMMITT. I would defer to my— 

Mr. HILL. We will let others, too. 

Mr. KIMMITT. —two panelists to the left. But what I would say 

is there is no definition of national security either in existing law 

or in the new bill. And I think that is very wise, because national 

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17 

security is a dynamic concept. It is quite different today than it 

was during the cold war. To me, it is the summation of our foreign, 

defense, and international economic policies, all resting on a strong 

intelligence base. So when those CFIUS committee members come 

together, they have the responsibilities in their statutes, in their 

regulations, to protect national security at the fore. And particularly for State, defense, and commerce, licensing issues that are 

proceeding on another track are very often brought into CFIUS for 

consideration on the facts of that particular case. 

I think it is really important to note that CFIUS shouldn’t substitute for the work that is done on licensing, export controls, or 

other areas. But certainly, it needs to be part of that consideration. 

I just would make sure that CFIUS isn’t leading in an area that 

I think is more properly the domain of State, Defense, and Commerce. 

Mr. HILL. Somebody else want to comment? Mr. Wolf? 

Mr. WOLF. Yes. Thank you. That is exactly my main point, which 

is if there is technology of concern, we should be controlled about 

the technology of concern and the transfer of it regardless of 

whether there is a transaction, regardless of whether there is a 

joint venture, regardless of whether there is an acquisition or a licensing arrangement. If we are going to spend the time, and attention, and government resources of identifying dual-use commercial 

technology of concern—and I grant everything that has been said 

today with respect to the underlying anxieties, and the motivations, and the concern, then we should do that. 

And the Export Control System is specifically created, again, regardless of the nature of the transaction to control it, and without 

the collateral consequences of spooking or having an otherwise 

broader impact on foreign direct investment. And it can be tailored 

to the country, end user, and technology of concern without affecting the entire economic ecosystem. 

So that is why I am an advocate for, to the extent humanly possible—it can’t solve all problems. But if there is a technology concern issue, spend the time identifying that and working it through 

the system to regulate it accordingly. 

Mr. HILL. And you think the statute gives you the ample authority to go through that process, identify that, and coordinate it inside the Executive Branch? 

Mr. WOLF. The legislation is already there, absolutely, to already 

do that. It is a function of will, and resources, and time, and commitment. It is not a statutory issue. 

Mr. HILL. And what about just—what is a bigger challenge of 

this country, foreign direct investment of sensitive assets, or just 

outright theft of American intellectual property? 

Mr. WOLF. In my view, it is clearly the latter. That foreign direct 

investment, by and large, is not the issue, but the underlying tech 

transfer or IP theft that you are referring to can occur in many circumstances, not necessarily in connection with something captured 

by foreign direct investment. 

Mr. ESTEVEZ. I would agree with that. 

Mr. HILL. Something like 5 to 10 percent of exports are not exports. But export value is just sheer theft of intellectual property 

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from Europe and the United States. Would you agree with that estimate? 

Mr. WOLF. I don’t know the percentages, but that seems reasonable. I haven’t looked at the exact data, but that seems reasonable, 

yes. 

Mr. ESTEVEZ. That was always a concern of mine, things that 

weren’t in our process, the CFIUS process. But cyber theft was a 

major concern. In fact, we put in some rules through—acquisition 

rules requiring companies to have at least a minimum standard of 

protection that were doing business with the Department of Defense to protect their IP that we were using. 

Mr. HILL. Do you think inside the Executive Branch that that 

is—in today’s world, since intellectual property, cyber risk, data security, true protection—I am not talking about just the trademark 

on Mickey Mouse, but I am talking about all of the above. Is that 

really adequately coordinated in the Executive Branch process? 

And is that—what is your view, having worked in it recently, as 

opposed to Mr. Kimmitt—we were centuries ago. We didn’t even 

have email then. So talk to me, are we adequately coordinated 

there? 

Mr. WOLF. No. I agree with the essence of your question, which 

is a lot more time and resources and commitment could and should 

be made to the effort of identifying those technologies that are commercial, that want control. Absolutely. Both— 

Mr. HILL. Thank you. 

Mr. WOLF. —and from an export control— 

Mr. HILL. Thanks, Mr. Wolf. My time has expired. 

Thank you, Chairman. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Ohio, Mr. Davidson. 

Mr. DAVIDSON. Thank you, Chairman. Thank you to our witnesses. I really appreciate your expertise in this vital matter for 

our national interests. And I certainly appreciate the importance of 

foreign direct investment in the United States. And we want to be 

clear that we are talking about things that would be counter to our 

national security interests, not things that would be counter to our 

national interests. We want foreign direct investment. We don’t 

want to give away our national secrets, even at a high price, if they 

would jeopardize the security of our country. 

I became concerned about this when I was a cadet at West Point. 

And in 1993, one of the first things the Clinton Administration did 

was transfer release authority for sensitive technology from Department of Defense to Department of Commerce. And we proceeded to sell, via Hughes, the capability to China to launch multiple satellites, in this case, not warheads, off of one launch vehicle. 

That seemed tantamount to treason to me at the time. But it was 

really a commercial decision. But it seemed really a bad thing for 

U.S. national security. 

So I am really grateful to Mr. Pittenger and to the folks in this 

committee that have tried to address a modernizing of legislation 

that is post 1993 but really past due for some reforms. One of my 

big concerns is, where are the gaps, even with this legislation? 

What is left to be done? And so Mr. Hill talked about licensing. But 

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also, one of the big things that you see is startup companies, and 

venture capital, venture investing. And we spent a little bit of time 

talking about China. We are certainly not only concerned about the 

relationship with China. On balance, we benefit greatly from that 

trade relationship, with some real concerns about trade policy. 

Here we are talking about national security. So putting aside 

countries, the kinds of mechanisms which were technology that we 

may still need to address beyond this CFIUS as it stands today. 

Ms. McLernon, would you care to start? 

Ms. MCLERNON. I think that you raise a number of very important issues. And there are a variety of different security experts on 

the panel other than myself. 

I do think that it is important that we don’t lull ourselves into 

a false sense of security. If we do focus only on one country and 

we ring-fence it, we risk being vulnerable to other areas of threat, 

and we also risk discouraging investment from that particular 

country that could actually benefit the U.S. economy. 

Mr. DAVIDSON. Yes. Thank you for the clarification. 

Mr. Kimmitt? 

Mr. KIMMITT. I would say that your point about instances beyond 

normal M&A activity is really an important one, Congressman. 

And let’s remember that the current law applies not only in the 

cases of ownership but also control. And CFIUS looks very closely 

at investments, including in startups, where a foreign company or 

investor would have enough equity ownership and enough governance rights—board seats, observer status, accumulation rights, special voting rights—that that could trigger the CFIUS covered transaction rule. 

I think, having spent 2 years, myself, running a software company in Silicon Valley, that isn’t well-understood there. I think we 

need to do a better job of letting people in our technology hubs— 

not just Silicon Valley but the Research Triangle, down around 

Austin, around the country—know that they have to be careful as 

they take that foreign investment that it does not rise to the level 

of control, which would then trigger CFIUS. 

And so, for example, if they are going to set up an investment 

fund, let’s make sure any foreign limited partners are truly limited, 

that they are passive investors. I think that is an area that CFIUS 

actually looks at fairly closely, but I think, on the company side, 

particularly in that startup community, there is not as clear an understanding as there should be of what foreign investors, particularly any with malign purposes, may be trying to do. 

Mr. DAVIDSON. Thank you. 

Mr. Estevez? 

Mr. ESTEVEZ. Well, first of all, I agree with Ambassador Kimmitt 

on that point. 

We also have to watch the negative implications. So if you are 

a startup in Silicon Valley with some really cool technologies, I 

want those companies to do business with the Department of Defense. And I don’t want them to not want to do business with the 

Department of Defense because suddenly we are going to put a 

fence around them. So— 

Mr. DAVIDSON. Yes, correct. And I think the big thing is, and to 

your point—because my time has expired—the point is that a lot 

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of these early stage folks don’t even realize the national security 

implications. It is a brilliant technology. It has dynamic, profound 

potential applications for our economy, for the global economy, but 

it could be used for nefarious purposes. 

My time has expired. Mr. Chairman, I yield back. 

Chairman BARR. The gentleman yields. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman, for 5 minutes. 

Mr. SHERMAN. With Dubai Ports, we had a company that happened to be owned by the government, and that government was, 

at the time, supporting international terrorism. 

Should we have in any CFIUS law a provision that says you explicitly must take into account whether the host government of 

whatever company is making the investment supports terrorism— 

whether or not is a state sponsor of terror? 

Does anyone have a comment? 

Anybody here think that we shouldn’t take into consideration 

whether the company making an investment in U.S. assets is based 

in a country that supports terrorism? 

Mr. KIMMITT. Mr. Chairman, I think at Treasury, which I 

know— 

Mr. SHERMAN. Right. 

Mr. KIMMITT. —a bit better, although the CFIUS process is run 

by the International Affairs Division, as you know, the people in 

TFI, Terrorist Finance, comment on every— 

Mr. SHERMAN. They comment, but there is not an explicit provision that says: It might be a wonderful company buying a wonderful asset; it just happens to be based in Tehran. And there is nothing in the law that I read or that you can point to that says that 

that would be one of the factors, correct? 

Mr. KIMMITT. There is nothing specifically in FINSA, although, 

as you know, in the wake of CNOOC and Dubai Ports, there was 

much greater scrutiny put on acquisitions by state-owned or—controlled entities. 

Mr. SHERMAN. But I am not just talking about state-owned or— 

controlled entities. 

Mr. KIMMITT. No, but I would say where you will find that specific language is in legislation that you have passed and Executive 

Orders that have been issued by the President on state sponsors 

of terrorism, including the Iranians and others. So— 

Mr. SHERMAN. The government or private enterprises based in 

Tehran? 

Mr. KIMMITT. I would say both— 

Mr. SHERMAN. You would say it would be rejected just on that 

basis? Or what weight would it be given? 

Mr. KIMMITT. Certainly, if it were a company based in Tehran, 

it would be rejected, I think, outright. 

But I think the key point you are making— 

Mr. SHERMAN. And maybe Dubai, we would look at it more carefully. 

I would point out that we may be looking too narrowly when we 

look at ownership or control of a company, as if you have to have 

seats on the board to control them. 

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21 

And I will give you one example. We have allowed a terrible situation in our weak position with China, so they are able to turn to 

Boeing and say, ‘‘We won’t buy your planes unless you make the 

fuselages here in China.’’ So they don’t have anybody on the board, 

they don’t own any stock, but they control corporate decisions. 

Now, I don’t know whether it was a fuselage or the wing assembly, and I don’t know whether that poses a risk to our national security or intellectual property. But I do know that, once we consent 

to a situation where a country can have a huge trade surplus with 

us, over $300 billion, and then turn to our companies and say, 

‘‘And you can’t even sell your products here unless you transfer 

this technology, unless you build this plant here, unless the patents 

are located here, unless the computer system or cloud is located 

here,’’ that we may be looking over at corporate ownership and not 

looking at corporate control. The fact is, if you can close your markets, you can control corporate decisions. 

Another thing I will point out is that I think it is important to 

note that, if bad decisions are made by CFIUS, they can be reversed under the International Emergency Economic Powers Act. 

Now, that would be extraordinary; it has never been done before. 

But I think that, as we plan to revisit CFIUS, we should be aware 

of that act which could be used—and I cite 50 U.S.C. 1702—to reverse a bad decision. 

And I yield back. 

Chairman BARR. The gentleman yields back. 

The Chair recognizes the gentleman from Minnesota, Mr. 

Emmer. 

Mr. EMMER. Thank you, Mr. Chair. 

And thanks to the witnesses for being here today. 

So I want to go back to Chairman Barr’s opening when he was 

talking about how does CFIUS balance national security versus foreign direct investment. And I want to tie it together with—I think 

it was something that Ambassador Kimmitt said about there is no 

definition of national security in the law. 

So what is the priority for CFIUS when you are reviewing a 

transaction? Is it national security or is it foreign direct investment? Which one comes first and then has to be balanced against 

the other one? And when you are talking national security, I will 

just add, how do you define it? 

And we will start with the Ambassador. 

Mr. KIMMITT. My point only was that national security is a dynamic, ever-changing concept. It meant one thing during the cold 

war, another in the post-cold war period, post-9/11, and post-financial crisis. 

And I think the important thing is CFIUS, which exists only to 

screen investments for national security concerns, has at the table 

every department and agency that is responsible for safeguarding 

the national security interests of the United States. So the Defense 

Department might bring their concerns about military technology. 

The State Department might bring, or Treasury, some of the concerns, for example, that Mr. Sherman mentioned about terrorist activity. Commerce will bring concerns about export controls. DHS 

and DOJ bring a very different set of concerns. 

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22 

So, basically, each of the agencies is looking at the investment 

in an open investment policy environment. But the reason that 

they are there is to say, even though we are open to investment, 

are there any elements of this transaction, if concluded, that would 

raise concerns from our department or agency’s perspective? If so, 

they need to be identified, addressed, mitigated. Or if they can’t be 

mitigated, the deal needs to be blocked. 

Mr. EMMER. Well, it doesn’t look like—when I look at this summary, a total of 770 transactions over the last, what is it, 6 years, 

something like that, that are cited in this graph. There aren’t 

many. 

And I go back, and maybe Mr.—I shouldn’t call you ‘‘mister’’— 

the Honorable Mr. Estevez, you were talking about when you review something inside the Pentagon. There is a case that I tried 

to look up, because it is back from 2011 and 2012 involving Cirrus 

Airplanes in Duluth, Minnesota, that a Chinese company came in 

and put a purchase agreement together, and all kinds of red flags 

went up, because the argument was they are going to buy this very 

interesting technology, they are going to reverse-engineer it in 

China, so we lose the jobs, we lose the—it is great to want this foreign direct investment, but I think Mr. Sherman had a great point. 

You also have it going on with what Mr. Hill is talking about, with 

outright theft. 

What happened—do you remember the case I am talking about? 

And is it one of the ones that was—there were 20 back in 2012 that 

the notices were withdrawn after commencement of the investigation. 

Mr. ESTEVEZ. First, being a member of the committee, we don’t 

really want to talk about specific cases, because the confidentiality 

of that process helps us dig into those companies. But the reality 

is I also don’t recall that case, specific case. 

Mr. EMMER. Well, no, and that is great, and I respect that. If I 

can just add, before I forget about it and let you finish, it would 

be very helpful if at some point down the road, when you think it 

is not hot anymore, where policymakers can actually see some of 

these cases and the deliberations that you go through. Maybe it 

would help us understand how CFIUS is working. 

Mr. ESTEVEZ. On any case, we would have looked at the technology. And, again, it is not about—economic security is part of national security, absolutely. And we would discuss that, too, when 

we were discussing cases. But we would look at the technology and 

say, is this technology state-of-the-art? Is it useful militarily, that 

it would advance their capability, whoever ‘‘they’’ are, in this case 

China, over ours? And if there was any doubt about that, I would 

be in there arguing that we either have to put control around this, 

depending on who the company was and the country was and 

whether we would trust them on those controls, or I would be arguing for a block. 

Again, as the Honorable Mr. Wolf sitting next to me would say, 

I was usually sitting there pounding the table saying this— 

Mr. EMMER. Yes, but then you could get overruled. 

Mr. ESTEVEZ. Never. 

Mr. EMMER. OK. Good. 

I see my time has expired. Thank you. 

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23 

Chairman BARR. The gentleman yields back. 

The Chair recognizes the gentleman from Illinois, Mr. Foster. 

Mr. FOSTER. Thank you, Mr. Chairman and to our witnesses. 

Let’s see. Mr. Segal, in your testimony, you mentioned things 

like source code as one of the things that are hard to keep under 

control when you get an investment. And are there investment 

models that allow us to accept money but keep the intellectual 

property here, or is that pretty much a lost cause once you have 

a significant investment? 

I am happy to have everyone—is there a workable model of that? 

Or once you have someone who has a 20-percent stake, they are 

going to want to see a review of the technology on regular intervals 

and want to have basically, people injected into the company and 

see both the present and the future intelligent developments? Any 

way to keep that from happening? 

Mr. SEGAL. Thank you. 

I think that that specific case refers to investment inside of 

China. So when— 

Mr. FOSTER. OK. It was just an example of the sort of intellectual property that is hard to—that is hard to keep in one place. 

Mr. SEGAL. So I think it would go back to Ambassador Kimmitt’s 

point that when you are investing in a startup or another technology company, what percentage control you get, what the terms 

are, and what access to the information, I think those are often individually negotiated. And then it would have to be brought to the 

attention, depending upon what the source code was, what the 

technology was, that was to be transferred. 

Mr. FOSTER. And is there a retrospective look at how successful 

those have been in keeping the technology from escaping? Or this 

is a one-time decision and then you don’t look back 5 years later 

and see if the technology has actually not been adequate? 

Mr. ESTEVEZ. So we would always look at the technology and see, 

again, how cutting-edge it was and how it would impact potential 

adversaries’ capability, again, from the Department of Defense perspective. 

And not only would we look at the technology itself, we would 

look at the industrial process. So some companies are better at 

doing things than other companies, and we wouldn’t want the secret sauce, if you would, to migrate overseas if it was a very stateof-the-art company. 

We would consider all those things. If we thought we could mitigate, we would propose the mitigation on how to wall off the fact 

that there was foreign cash going into the company. If we didn’t 

think we could do that, we would propose a block. 

Mr. FOSTER. And when you believe you have walled it off, do you 

then have a process in place to review how successful that walling 

off has been? 

Mr. ESTEVEZ. If we propose mitigation, we would enforce that 

mitigation agreement in perpetuity. So you were assessing how 

that was working. 

Now, with that said, I will go to my earlier testimony: There are 

not enough resources to continue doing that, especially as cases get 

more complex. 

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24 

Mr. FOSTER. And if you look further into the future, it is easier 

to catch up than to develop new technology that doesn’t previously 

exist. And so, in the medium/long term, we are going to be coequals with many countries in Europe and Asia in a lot of areas. 

And so then the question is, do we have a structural disadvantage? Or will it become as easy for us to invest and get their technologies moving back in areas where they are ahead of us? Or is 

that something where we should start negotiating now to make 

sure we haven’t built in a structural disadvantage as coequals? 

And this is in a world where we are coequal technologically. 

Mr. SEGAL. Well, I think, in particular with the case of China, 

we do want to insist on greater reciprocity. There are a number of 

sectors in high technology that are still off limits for U.S. investment. The amount of openness and access to U.S. R&D, U.S. universities does not exist in the Chinese case. So, as China becomes 

a more capable player, I think it behooves us to insist on greater 

reciprocity and access to those resources. 

Mr. FOSTER. Now, in addition to absolute cutting-edge technological spaces, a lot of the future military applications are going to 

be things like drone swarms, like just massive numbers of security 

cameras, things like that, where it is actually the price that is as 

important—the mass production of very large numbers of relatively 

low tech, where ‘‘low tech’’ includes cameras with facial ID and 

things like that. 

And I was wondering, is there a lot of concern that, even though 

the technology might not be leading-edge, that just the very highvolume manufacturing is another area where we could fall behind 

and have to protect the technology? 

Mr. ESTEVEZ. Yes. Let me address that very briefly. 

We would look at the technology. If it wasn’t cutting-edge, we believe that our innovation would pace that. And, more importantly, 

from a military perspective, our tactics, techniques, and the men 

and women that are in our forces constitute an advantage on how 

they use that technology that would pace whatever competitors 

there are in the globe. 

Mr. FOSTER. All right. Thank you. 

And I yield back. 

Chairman BARR. Thank you. 

The gentleman’s time has expired. 

The Chair recognizes the gentleman from Indiana, Mr. Hollingsworth. 

Mr. HOLLINGSWORTH. Good morning. I appreciate all of the witnesses being here today. This is certainly an interesting topic and 

a vital topic that we discuss further. 

Mr. Foster, my colleague, had brought up some of the ongoing 

monitoring, and I know Mr. Estevez had answered some of those 

questions. But I wanted to get back to that and talk a little bit 

about these monitoring agreements and how vital it is that we ensure what we set in place and the guardrails around that are continually being looked at and updated. 

So I know you mentioned that resources are a problem. Can you 

talk a little bit about previous issues with resources, what resources might be required, what apparatus we have in place, what 

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25 

apparatus we need in place, and just fill in some of the color 

around the ongoing monitoring agreements? 

And others can certainly take the question as well. 

Mr. KIMMITT. I would start at the general, let my colleagues go 

to the specifics. 

I have spent a lot of time working in Government. Most of the 

energy and the resources go in on the upside—that is, until the policy decision is reached, the legislation is enacted—and we don’t 

give the attention and resources to the implementing side of it, 

which is really important. You know that from your business time. 

You have to drive to results. 

And so what I would say is let’s make sure we have resources 

on both sides of that equation. And if in the middle of it is a mitigation agreement, let’s make sure there is as much energy put into 

implementing and overseeing that mitigation agreement as there 

was in negotiating it. 

That is where I think we run into a real resource problem. I 

think both in Treasury and in the interagency process more broadly we have barely enough people to address today’s cases. And if 

you then have an increase in cases or implementation responsibilities because you pass new legislation, I think the place that is 

going to lose is on continuing to watch those mitigation agreements, make sure that they are faithfully executed, and, as Mr. 

Estevez said, very importantly, that we connect the dots across decisions that are made. That is where I think the resource constraint comes in. 

Mr. ESTEVEZ. One other factor—and I fully agree with Ambassador Kimmitt on that—is that, as time elapses from the time a 

mitigation agreement is put in place—so if we did one for DoD in 

2013, I remember it. I am gone. Some of the staff has turned over. 

Some of the outside directors that we put in have turned over. So 

I am real concerned about institutional memory that comes with 

resources to do that enforcement. 

Mr. HOLLINGSWORTH. Yes. I think that both your comments are 

really, really thoughtful in ensuring that, ultimately, if we are 

going to make a certain decision, we need to have the resources to 

enforce those decisions. 

And as you well said, if we are going to be faced with many more 

cases and resources are barely enough to even face those cases, if 

there is a probability any greater than zero that some of those will 

be accepted and there will be monitoring agreements, then resources need to be allocated to those monitoring agreements in the 

long term as well. 

I wanted to specifically also ask of Mr. Wolf, was there ever a 

time in your tenure where you felt like you didn’t have enough 

time to adequately review, thoroughly vet, and arrive at the right 

decision in your mind— 

Mr. WOLF. No. 

Mr. HOLLINGSWORTH. —that the process was rushed? 

Mr. WOLF. No. I agree with Alan. We never cleared off on a 

transaction for which any of the departments believed there was an 

unsolved national security threat. To the extent we needed more 

time, there were withdrawals and refiling. And with massive ternshattuck on FSR297 with DISTILLER

26 

rific support from the intelligence community, I am confident that, 

with all the cases we reviewed, we made it to the right outcome. 

And to refer to a comment made earlier, they were never a balance—we were never balancing investment with national security. 

If there was an unresolved national security threat, we blocked or 

mitigated; we didn’t balance. And so the answer to your question 

is no. 

Mr. HOLLINGSWORTH. Well, that answer to the question certainly 

will help Hoosiers back home sleep better at night, knowing that 

we are thinking about those things and we are giving them the 

adequate amount of time to vet them. 

And I really appreciate the comments. And I think this is something, more broadly, as you well said, as a problem, an epidemic 

across all aspects of Government, that we spend too few of our resources focused on the enforcement of a decision instead of just on 

the decision itself. 

And, with that, I will yield back, Mr. Chairman. 

Mr. KIMMITT. Mr. Chairman, could I just add one point, just 

picking up on the point that Mr. Wolf just made? 

It is really important to understand the critical role that the intelligence community plays in the CFIUS process. When the case 

is filed, it is sent to the Director of National Intelligence for a community-wide look at the case. I would say, going to Mr. Foster’s 

point, particularly some of the S&T considerations that need to be 

looked at very closely, and the DNI then comes back with a low, 

medium, or high assessment, that helps guide—it doesn’t make the 

decision, but guide what the committee does. And then, as was 

mentioned, almost all of the major CFIUS agencies have their own 

intelligence elements inside. So there are almost two bites at that 

apple. 

I think for looking ahead, that 5-year look-ahead, in addition to 

make sure that we implement correctly, we are really relying on 

the intelligence community to come with us not just on the instant 

concerns on these transactions but what are those trends, those 5- 

and 10-year trends that we need to be concerned about. 

Chairman BARR. Thank you. 

The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the witnesses for appearing today. I think this is an exceedingly important hearing. And I am very much concerned about 

assuring ourselves that we are on the right course. 

Mr. Segal, you have indicated that unilateral action may not be 

sufficient, that there is something more that we have to do so as 

to protect our U.S.-originated science and technology. Would you 

give some additional intelligence on this, please? 

Mr. SEGAL. The fundamental issue is that there are very few, if 

any, science and technology issues that the United States still monopolizes. And so, for any technology that the United States has 

decided that it represents a dual-use threat, it is very possible to 

go find, except for a very, very narrow range of technologies, similar producers. 

To give just an example, on issues on cybersecurity or AI or computer science or technology, the Chinese are sending delegations to 

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Israel every week. And while the Israelis are more aware of our 

concerns about dual-use, they are not going to find in the same 

ways that we are in every instance. 

So I think the issue is that, unless you have a fairly broad set 

of agreements among your partners, it will be very easy for Chinese actors to find most technologies in other markets. 

Mr. GREEN. With reference to partners, are there certain institutions that can validate a partner’s position such that we can feel 

more comfortable with it as opposed to someone that might not be 

associated or affiliated with the institution? 

Mr. SEGAL. I may defer to Mr. Wolf, but I suspect that the intelligence agencies cooperate and share information. 

Mr. GREEN. If you would, please. 

Mr. WOLF. Sure. 

To the extent that there is information about an entity that creates national security or foreign policy concern, my old bureau, Bureau of Industry and Security, had the authority to identify it publicly as an entity to which exports are blocked or other transactions 

are red flags. 

And then, within the CFIUS review process, the intelligence community will provide to us information about other entities that 

might not necessarily be known to the parties, and we factor that 

into our decisions to either block or mitigate. 

Mr. GREEN. What about NATO, a membership in NATO? Does 

that give you some degree of assurance? 

Mr. WOLF. With respect to the country—as a country, absolutely. 

But it doesn’t mean that every company inside each NATO country 

is, per se, not a concern. So we review not only the country of issue 

but the company, the personnel, the funders, people that may be 

behind it. So just because it is from Germany or France doesn’t, per 

se, mean that there are absolutely no concerns. 

Mr. GREEN. And how effective are we at spotting companies that 

have investors that may have ill intentions such that they are in 

a position to take advantage of knowledge that they acquire notwithstanding the fact that they look legitimate? 

Mr. WOLF. Well, that is one—real quick, that is one reason for 

my emphasis on the focus on the technology. If the technology is 

of concern, it warrants review, period, regardless of who the parties 

are. And the licensing process gives the U.S. Government the opportunity to do a deep dive into who the investors or other parties 

are, as opposed to the other way around. 

Mr. ESTEVEZ. And the intelligence community does a very good 

job of digging out all the facets of a company, including whether— 

who are the bad investors that may not be good actors. 

Mr. GREEN. We have some sensitive areas in the United States 

where we have certain things being developed that are to be kept 

under wraps, for want of better terminology. Do we have any concerns about persons locating businesses in and around these very 

sensitive areas? 

Mr. ESTEVEZ. If it was a covered transaction, we absolutely address that under the CFIUS regime. 

Mr. GREEN. Well, my time is up. Thank you, Mr. Chairman. I 

yield back. 

Chairman BARR. The gentleman’s time has expired. 

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And with the witnesses’ indulgence, we are about ready to have 

a vote on the House floor, but we will take the liberty of asking 

one final 5-minute round of questioning, with members’ agreement 

here. 

We heard from Ms. McLernon earlier that, although the U.S. 

capital markets are the deepest, most liquid and competitive in the 

world, in and of themselves, U.S. domestic capital markets are not 

sufficient to provide the level of financing that startups and other 

companies need, and foreign direct investment is a very critical 

part of financing of our companies in this country. And they provide, in the cases of foreign direct investment, many times, other 

assets other than just capital. 

We also heard today that there are legitimate national security 

threats, and we need to strike the right balance. 

So just in the remaining time, could each of you briefly—if you 

could identify one policy recommendation to improve the current or 

modernize the current CFIUS review process, what would that one 

policy recommendation be? 

And we will start with Mr. Kimmitt and work our way down. 

Mr. KIMMITT. I would go back to what has been the common 

theme, and that is we need to make sure that we have adequate 

resources both for the identification of potential issues, the review 

and adjudication of those, and then implementation of any agreement that might be reached, a mitigation agreement, to bring us 

to a ‘‘yes’’ answer. 

And I would think it is very important, going back to Mr. 

Pittenger’s point of the number of senior officials in the Administration who have talked about the need to reform CFIUS, I would 

just say I hope those senior officials will themselves get involved 

in the process both to identify the resources they need in their departments and agencies and empower their people involved in the 

CFIUS process to deal with these cases expeditiously on behalf of 

the American people. 

Chairman BARR. Thank you. 

Mr. Estevez? 

Mr. ESTEVEZ. Of course, in my testimony, I address certain 

areas. There are many of the areas in Mr. Pittenger’s bill. The resources need to be addressed. 

But I would also say that CFIUS is one tool in the toolbox. We 

need to look at the gamut of our legal capabilities and what industrial policy and reciprocity that we might want to enforce across 

the board in our dealings with foreign nations and foreign companies. So, while CFIUS is one way to get at that, it is not just 

CFIUS. 

And the final point I will make is you need carrots as well as 

sticks in this process. 

Chairman BARR. Mr. Wolf? 

Mr. WOLF. A significant, massive, whole-of-Government effort 

that is creative and digs into all the types of emerging technologies 

and other technologies that aren’t on either of the control lists that 

are in commercial applications that are sensitive or of concern that 

have been discussed behind all the comments today. That requires 

a lot of agencies, a lot of creativity, a lot of attention, and a lot of 

resources, frankly, to do that. 

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With everything we are talking about today, it all depends, 

whether it is part of the legislation or export controls, on the ability of either CFIUS or the Export Control System to identify the 

technologies of concern, whether broadly or specifically. That is the 

work that is at the core of everything we are talking about today. 

And that is my policy recommendation. 

Chairman BARR. Mr. Segal? 

Mr. SEGAL. If the concern is primarily China, then I think we 

need to address all of the other forms of technology transfer that 

are occurring, so some of the issues of reciprocity that I mentioned 

before, as well as battling back on techno-nationalism in Chinese 

industrial policy. 

On the CFIUS process itself, I echo the calls for resources and 

also, perhaps, new mechanisms for tapping into the expertise in 

academic and business communities about how the technologies are 

developing, which ones are going to be the ones we are worried 

about 2 to 5 years from now, and what types of joint ventures and 

other types of agreements our people are thinking about in the future. 

Chairman BARR. Ms. McLernon? 

Ms. MCLERNON. Let me just also echo the important need for resources. It is very hard to determine how well CFIUS works now 

and what the gaps are if they don’t have the resources to do the 

job that is in front of them now. If we expand the scope, we risk 

leaving ourselves vulnerable and may take their eye off the true 

defense-related, national security concerns. 

I don’t think it was mentioned earlier the number of deals 

blocked. I don’t think that that is an indicator of whether CFIUS 

is working. You have no idea how many deals don’t even start because CFIUS exists. So I wouldn’t look at those numbers, per se, 

that it wasn’t functioning properly. 

But I cannot emphasize enough the need for resources there, not 

only for national security but for our ability to be competitive. Because foreign-based companies are concerned now with the length 

of time that has to happen in order to get a review. So I can’t emphasize that enough, as well as looking at other tools, that CFIUS 

cannot be the one and only thing that we focus on to protect our 

national security in this space. 

Chairman BARR. Thank you. 

And I would like to yield to the gentleman from North Carolina 

for a comment. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Thank each of you for being with us today. It is very, very meaningful to all of us. 

I would like to enter into the record statements of support for 

CFIUS, which would include former Secretary of Commerce Penny 

Pritzker and Secretary Wilbur Ross, the Secretary of Commerce. 

Chairman BARR. Without objection. 

Mr. PITTENGER. I would also really like to thank Senator Cornyn 

for his leadership. It has been remarkable. He and his team have 

really worked very hard on this. It is been an honor to work with 

them. 

I also would like to thank Secretary Mnuchin and Treasury. 

They have played a significant role in writing this legislation, along 

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30 

with Chairman Nunes, who is a cosponsor of this bill, and Chairman Burr. Everyone has participated in a very significant way to 

make sure that we have a good perspective on what needs to be 

done going forward. 

Thank you, Chairman Barr. 

Chairman BARR. Thank you. 

The gentleman yields back. 

And for a final comment, I will yield to the gentleman from Illinois. 

Mr. FOSTER. Well, I just want to thank you and, I guess, apologize for the attention deficit disorder of Congress on this sort of 

issue. And thank you, Chairman, for attempting to remedy that. 

Because this is something where I think our Government and 

our Nation suffers from the lack of the long-term vision that you 

actually, frankly, see in China, that a lot of our investment model, 

where you are bonused on the quarterly profits as opposed to the 

10-year performance of a company, causes us to not invest as strategically as we should. 

And I hear you very clearly about the lack of resources. When 

we have some big mess like the Ebola crisis and so on, there is a 

big temporary spike in funding, and then it gets eaten away until 

the next time things become a crisis. This has been on ongoing crisis for more than a generation. 

Now, one thing that occurred in some of your testimony was reference to intellectual property violations. And one of the reasons 

that we have to depend on foreign capital for things like venture 

capital is that, when you have a really good invention, like Microsoft Word, and then find that it gets pirated in other countries, you 

don’t have the follow-on investment capital. 

And I was just wondering if you see that as an important area 

where we have to—this would be a much smaller problem if there 

was a huge increase in the amount of venture capital available 

simply because we didn’t have our inventions ripped off offshore. 

There was a number, like, 150 billion of Chinese investment into 

startups? Was that a number that occurred in one of your testimonies? And that is probably small compared to the amount of 

software that gets stolen, for example, in China every few years. 

And so I think we have to keep our eyes on that one very strongly. 

I just want to thank the Chairman for having this hearing. It is 

a big deal. And thank you. 

Chairman BARR. Thank you. 

I appreciate the gentleman, and he yields back. 

And I would like to thank all of our witnesses for their testimony 

today. It was very educational, illuminated a lot of issues for the 

members. 

As we indicated before, this subcommittee will continue to review 

the CFIUS process. We will have several more hearings at the beginning of 2018, and we invite the continued engagement of these 

witnesses and others as we continue to review and update this 

process. 

And I would echo the comments that we do hear you loud and 

clear on the resources point, which was a unanimous point that 

was made here today. 

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31 

Without objection, all members will have 5 legislative days within which to submit additional written questions for the witnesses 

to the Chair, which will be forwarded to the witnesses for their response. I ask our witnesses to please respond as promptly as you 

are able. 

This hearing is now adjourned. 

[Whereupon, at 10:43 a.m., the subcommittee was adjourned.] 

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(33) 

A P P E N D I X 

December 14, 2017 

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United States House of Representatives 

Committee on Financial Services 

Subcommittee on Monetary Policy and Trade 

Examining the Operations of the Committee on Foreign Investment in the United 

States (CFIUS) 

Opening Remarks of The Honorable Alan F. Estevez 

Former Principal Deputy Under Secretary of Defense for Acquistion, Technology, 

& Logistics (2013-2017) 

December 14, 2017 

Chairman Barr, Ranking Member Moore, distinguished members of the subcommittee, 

thank you for opportunity to appear at this hearing and to testify regarding the 

Committee on Foreign Investment in the United States, or CFIUS. 

While I am now at Deloitte, I want to be clear that the views I express today are my own. 

My expertise in this area derives from my previous position in government. I was the 

Principal Deputy Under Secretary of Defense for Acquisition, Technology, & Logistics, in 

an Acting capacity from 2011 to 2013, and confirmed in the position from 2103 to 

2017. In that role, from 2011 to 2017, I managed the CFIUS process for the 

Department of Defense (DoD), and I was the DoD representative to the CFIUS. 

Before I discuss my experience and views with regard to CFIUS, I believe it is important 

to review why CFIUS is critical to national security. There are many reasons that the 

United States has the finest military in the world, most importantly the innovative, 

dedicated men and women that volunteer to join the force. However, another reason is 

the technological superiority of our military force, or, in other words, our technological 

advantage over our adversaries. The US never wants to send our great force into a fair 

fight, we always want the advantage, and our technological superiority helps to ensure 

that. With that said, our technological advantage over potential adversaries has eroded. 

This happened for a number of reasons, to include the now 16-year focus on the war 

against terrorists, the inevitable globalization and commercialization of technology, and 

the devastating impacts of the Budget Control Act on DoD buying power. On the other 

hand, CFIUS is one of the tools that helps our military to retain its technological 

competitive advantage. 

Based on my experience, the CFIUS interagency process worked, and, in fact, it worked 

well in protecting the national security of the United States. That does not mean that we 

did not have to adjust the process to make it more effective over time. However, I can 

say that over the hundreds of CFIUS cases that I processed as the DoD representative 

to CFIUS, I never signed off nor ever asked the Deputy Secretary of Defense to sign off 

on a CFIUS case resolution that would in any way imperil national security. In my view, 

the DoD always achieved the mitigation terms we asked for in cases that merited 
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mitigation, or received Committee support to propose a prohibition for those cases in 

which mitigation was too risky. This was true whether DoD was the lead agency along 

with the Department of Treasury, or the DoD was in support of another Department. 

My second point is that current CFIUS authorities, along with the authorities in other 

Departments, such as the export control authorities of Commerce, allowed the 

Committee to properly adjudicate the wide variety of cases that came before the 

Committee. I'll address areas where I think authorities need to be expanded in a 

moment, but for the types of cases currently within CFIUS jurisdiction that we 

adjudicated during my time, we had adequate authorities to rely on. 

When I assessed CFIUS transactions from the DoD perspective, I personally used a 

construct, which I called the three C's plus one. The C's represented Country, 

Company, and Commodity (which includes technology). The plus one was Co-location, 

that is when a foreign company proposed buying a company that was located near a 

sensitive military site. This framework helped me and my staff to assess the risk to 

national security involved in each transaction we processed. For each case, we would 

assess whether the home country of the purchasing party was a country of concern. 

The country of concern definition not only included potential adversaries or malicious 

actors, but also could include, for example, countries that were lax in protection of 

technology or were lax in the protection of personal identifiable information. This 

framework was not targeted at any particular country, but would incorporate intelligence 

community identification of the threat posed or potentially posed by any given country 

for any particular transaction. 

In assessing companies, we would determine if the company was a state-owned 

enterprise, whether the company had been created for the specific deal, or if the 

company or its ownership was reliable and stable. To assess commodities and 

technology, we would assess criticality to DoD weapons systems, both current and 

future, how cutting edge the technology was, whether the technology was already 

globally available, and what the impact of a supply chain disruption would be. 

Co-location cases, again, cases in which land or facilities near critical military training 

and test ranges was being purchased, became more prevalent over time. In these 

cases, we would assess what activities were taking place at a given location and 

whether the purchasing party would be able to observe or impact those activities. 

If the DoD assessment raised a concern over any one of the C's, DoD would perform a 

deeper assessment of a given transaction. If we had concerns with two or more C's, my 

experience was that such cases were likely headed to mitigation of some kind or a 

recommendation to block. As I noted, current CFIUS and agency authorities allowed us 

to properly adjudicate cases regardless of whether the country involved, the company 

involved, the commodity or technology involved, or co-location was the issue. 

Before moving onto areas where I believe CFIUS authorities need to be expanded or 

clarified, I do want to compliment the Treasury staff and the intelligence community for 

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the support that they provided to CFIUS. The Treasury staff worked very closely with 

the DoD, which I believe had co-leadership on most of the difficult cases. Treasury did 

an excellent job of making the process more efficient during my time as a Committee 

member, and they were always willing to adjust the internal process as the cases grew 

in complexity. The intelligence community provided much needed background on cases 

and they also altered their process to shorten timelines and provide additional detail, 

again as the cases grew in complexity. 

I'd like to now turn to areas where I believe CFIUS needs expanded authorities. I 

recognize there are proposals currently being reviewed by this Congress. My 

comments are not based on any specific legislation, but rather, they are based on my 

CFIUS experience. 

The first area I believe CFIUS needs to have increased jurisdiction over is Joint 

Ventures. Some Joint Ventures, in which companies form partnerships with other 

companies and in which ownership of the original company does not change, may put 

national security at risk through technology or intellectual property transfer. While I'm 

sure the vast majority of Joint Ventures do not threaten national security, the same 

three C's plus one framework I applied to CFIUS acquisition transactions involving 

foreign companies should be applied to Joint Venture transactions. 

Coverage over entities in bankruptcy is another area where I believe we need to expand 

CFIUS authorities. Bankruptcies of US companies, especially those involved in 

futuristic or cutting edge technologies, could end in the sale of technology or intellectual 

property assets to countries or companies of concern. Again, CFIUS should be allowed 

to review these transactions, and if required, allowed to mitigate or block them. 

The final area I believe we need to assess with regard to CFIUS authorities is what I 

called "connecting the dots." Under current CFIUS authorities, each transaction is 

reviewed separately, which generally works. However, during my time as a CFIUS 

representative, we noticed trends in which specific countries, and many times, 

companies, were engaged in multiple transactions involving segments for industry. 

These trends usually mirrored a country's stated goal of increasing its own capacity in a 

given industry segment. Most times, the companies and technologies being purchased 

were relatively small, not state-of-the-art, and not critical to national security. However, 

just as in merger and acquisition anti-trust assessments, there comes a point when too 

much of a particular segment of industry is under foreign control. In addition, while 

these small, not state-of-the-art companies may in and of themselves not be critical to 

national security, they may play a role in the supply chain of more critical companies. 

Control of multiple entities in a particular industry segment may also allow the mapping 

of the supply chain for the broader industry. Again, this may put national security at risk 

and should be assessed. I don't know what the tipping point for too much outside 

control of an industry segment is, and it likely varies by industry and by technology, but I 

believe that CFIUS must be given authority to assess trend analysis and weigh in on 

transactions based on that analysis when necessary. 

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The last area I would like to address is resources. The reality is that just to handle, 

manage, and mitigate the cases in the current workload, CFIUS needs more resources. 

The cases coming before the Committee are growing in their complexity, and I firmly 

believe that certain countries are actually testing the CFIUS process and seeking the 

gaps to overcome CFIUS. Resources are needed to adequately perform the due 

diligence on the cases that come before CFIUS in the time frames required by the 

CFIUS legislation. If CFIUS authorities are expanded in the ways I have outlined above 

or as outlined in proposed CFIUS legislation, CFIUS, both centrally and within each 

CFIUS member agency, will need more resources to process cases. Resources are 

also needed to adequately assess unfiled transactions, potentially the lower part of an 

iceberg of CFIUS-related threats to national security. 

CFIUS also needs resources to perform mitigation oversight. As cases have grown in 

their complexity, mitigation agreements have also grown in complexity. To expect these 

agreements to be enforced from within existing staff resources is simply not realistic. 

Even when companies pay for the mitigation, the Federal government oversight is still 

required and must be resourced. I make this plea not as someone who currently has 

responsibility for managing stretched federal government resources, but as a private 

citizen with deep experience in this area and concern for our national security. 

I thank the Committee for holding this hearing. This is a critical topic for continuing the 

long-term viability of our technological superiority- and technological superiority 

remains one of the foundations for our military capability. I look forward to your 

questions. 

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Written testimony of 

Ambassador Robert M. Kimmitt 

Former Deputy Secretary and General Counsel of the U.S. Treasury 

Before the Subcommittee on Monetary Policy and Trade 

of the 

Committee on Financial Services 

United States House of Representatives 

Foreign Direct Investment: Striking the Balance 

December 14,2017 

Mr. Chairman, Ranking Member Moore, members of the Subcommittee, 

Thank you for your invitation to discuss today's important topic. It is a particular pleasure to 

appear with my distinguished fellow panel members. 

In my capacity as a former govermnent official, I would like to offer perspective on the 

Committee on Foreign Investment in the United States (CFIUS). This is one of those rare 

instances where advancing age, which includes over three decades of work on CFIUS, has some 

benefits. 

My experience with CFIUS began in 1985, when I served as Treasury Department General 

Counsel under President Ronald Reagan and Secretary James Baker. CFIUS was then governed 

by its founding Executive Order, signed in 1975 by President Ford because of concern about 

Saudi petrodollars being recycled to buy American assets. 

Later during my service at Treasury, concern had shifted to Japanese purchases, which led to 

passage in 1988 of the Exon-Florio Amendment to the Defense Production Act, which gave 

CFIUS its first statutory basis. In 1992, concern about state-owned companies buying sensitive 
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US technology companies led to passage of the Byrd Amendment, subjecting state-owned 

acquirers to special scrutiny. 

In 2005, I returned to Treasury as Deputy Secretary. After deals involving the Chinese National 

Overseas Oil Company (CNOOC) and Dubai Ports were blocked by congressional concerns, 

Congress passed the Foreign Investment and National Security Act of2007 (FINSA), the 

governing legislation for today's operations ofCFIUS. 

2 

Because of growing concern about Chinese investment in the United States, particularly by stateowned enterprises and especially, but not exclusively, in the technology sector, legislation has 

been proposed by a bipartisan group oflegislators led by Senator Cornyn and Congressman 

Pittenger. While I am not appearing to discuss individual elements of the proposed legislation, I 

would like to offer some observations that may assist in your deliberations: 

• Every public official has a solemn and primary obligation to safeguard US national 

security. Earlier this year, this Committee, in making the Secretary of the Treasury a 

statutory member of the National Security Council, recognized that our economic 

strength is tightly linked to our overall security. 

• Any analysis of foreign direct investment (FDI) should begin by recognizing its 

important contribution to the US economy. My former boss, then Treasury Secretary 

Baker, described foreign investment as America's economic "ace in the hole," because 

such investment represented a foreign company's strong vote of confidence in the US 

market and American workers. 

• Nancy McLernon will cover this point far better, but I would note that almost 7 million 

Americans will receive their paychecks this month from companies headquartered 

overseas. A full40% of those workers are in manufacturing jobs, versus 13% in the 

overall economy. So an FDI job is three times more likely to be in manufacturing, and 

these jobs pay about 25% more than the economy-wide average. That is why a more 

open investment policy is integral to US economic success, and I urge President Trump 
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to join his predecessors, save one, in issuing the traditional US Open Investment Policy 

statement at the earliest opportunity. 

• But in issuing that statement, and in considering the bill before you, it is important to 

make clear that the US Government must ensure foreign investment does not harm US 

national security interests. Chinese investment has an appropriately high priority for 

close scrutiny, because China seeks to compete strategically against the United States in 

multiple spheres- military, diplomatic, and economic using all elements of the state, 

including state-owned enterprises, in that competition. We are also witnessing a greater 

complexity of proposed deals, specifically those involving companies in the technology 

sector. 

3 

• It is important to note that Exon-Florio provided, and FINSA provides, significant 

authority to identify and block troublesome Chinese acquisitions. The first acquisition 

unwound by a President was China National Aero-Technology's stake in Mamco 

Manufacturing in 1990 under George H.W. Bush. Huawei's acquisition of3Com did not 

proceed under George W. Bush. Huawei's acquisition of3Leaf; Ralls' acquisition of 

wind farms near a US naval base; and Fujian Grand Chip's attempted acquisition of 

Aixtron's US assets were blocked by President Obama. And President Trump recently 

blocked the acquisition of Lattice Semiconductor by a Chinese investment group. 

• As you consider new legislation, therefore, I would be sure to address actual gaps in 

existing authority. There is particular concern that Chinese companies may be using 

creative legal structures to conclude deals short of ownership or control that could 

nonetheless impair US national security. I believe this is a very valid area for stricter 

scrutiny in the United States. I would be careful, however, about extending CFIUS's 

reach to transactions occurring outside the United States. 

• This comment raises a very important point: CFIUS is intended to give the President an 

exceptional authority to protect the United States, without, however, superseding or 

substituting for important authorities in other statutes. So, for example, if a joint venture 
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4 

abroad raises concerns about technology transfer or compromise, the export control 

regime and authority under the Export Administration Regulations (EAR) or International 

Traffic in Arms Regulations (IT AR) should be the first line of defense. Today, when 

others in the interagency community cannot resolve contentious issues under their 

authority, those issues are often adjudicated in CFnJS, counter to the law's admonition 

that CFnJS be an authority of exceptional rather than primary resort. Both Alan Estevez 

and Kevin Wolf, who have more relevant and more recent export control experience than 

I, will also have important perspectives on this point. 

• This leads me to the view that the greatest problem facing CFIUS today is not a lack of 

authority, though additional authority is warranted, but rather a lack of resources. As 

cases filed before CFnJS climb to 250 this year, and with the prospect that CFnJS 

agencies led by Treasury could be involved next year in a time-consuming legislative and 

regulatory implementation exercise, I think the increase in workload may begin to delay 

jobs-producing investments that do not raise national security concerns. It will also leave 

less time for Treasury to engage in important pre-deal discussions with investors looking 

for guidance on how best to identifY opportunities that do not raise security concerns. 

The draft bill recognizes this resource challenge, and I urge that matching requirements to 

resources be a central point in your further deliberations. 

• Today's hearing and your future actions are also being watched closely overseas. 

Germany has already tightened its investment screening mechanism; Britain is 

considering doing the same; and, of concern, the European Commission (EC) in Brussels 

is establishing an investment review mechanism- even though under European law the 

Commission has no authority or jurisdiction on security matters. So the new EC review 

may become a political screening process that could create a new barrier to US 

investment into that important market of over 300 million consumers. 

• These and similar developments around the world lead me today to be more concerned 

about investment protectionism than trade protectionism. If we want to continue to grow 

well-paying FDijobs in the United States, we must send a clear message that we are open 
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to investment except in those instances where a CFIUS process focused squarely on 

national security determines an investment must be blocked. I know you will strive to 

strike that important balance. 

Thank you for your kind attention. I look forward to your questions and my fellow panelists' 

presentations. 

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House Financial Services Committee 

Subcommittee on Monetary Policy and Trade 

Hearing on "Examining the Operations of the Committee 

on Foreign Investment in the United States" 

Testimony of Nancy McLernon 

President & CEO, Organization for International Investment 

December 14, 2017 

Chairman Barr, Ranking Member Moore, and other distinguished members of the Subcommittee, 

thank you for the invitation to testify this morning. My name is Nancy McLemon and I serve as 

the President and CEO of the Organization for International Investment (OFII). OFII is the only 

business association exclusively comprised of U.S. subsidiaries of foreign companies. Our 

mission is to ensure that the United States remains the most attractive destination for foreign 

direct investment (FDI). As such, we advocate for non-discriminatory treatment in U.S. law and 

regulation for these firms and the millions of Americans they employ. Given our unique 

membership, I believe OFII is well positioned to be a constructive voice in your deliberations 

moving forward as our companies are some of the Committee on Foreign Investment in the 

United States' (CFIUS) primary users. 

The inbound business community applauds efforts of this Subcommittee to carefully examine the 

current operations ofCFIUS and efforts by Senator Cornyn and Representative Pittenger, among 

others, to reform and modernize CFIUS. Working to safeguard the United States from those who 

would exploit this country's open economy to do us harm is of paramount importance. We 

welcome the recognition that as part of this legislative undertaking, it is critically important to 

truly focus on national security and not hinder the economic openness that has propelled our 

nation's prosperity. 

Impact of Foreign Direct Investment in the United States 

The impact of FDI in the United States is tremendously beneficial. International companies 

employ 6.8 million workers in the United States- including 20 percent of the U.S. 

manufacturing workforce. 1 In fact, between 2010 and 2014, two thirds of all new manufacturing 

jobs that were created can be attributed to FDI.2 Across the country, U.S. workers at FDI 

companies earn 24 percent higher compensation than the economy-wide average. 3 In addition, 

these companies engage in high levels of research and development (R&D), accounting for 16 

percent of all R&D performed by U.S. companies.4 They also make extensive capital 

investments in new facilities and equipment totaling nearly $100 billion dollars annually and 

produce 23 percent of U.S. exports- that's nearly a billion dollars of exports every single day. 5 

Further, international companies fuel local growth by purchasing hundreds of billions of dollars 

1 Department of Commerce Bureau of Economic Analysis, Survey of Current Business Activities of U.S. Affiliates 

of Foreign Multinational Enterprises, (Washington, DC: Aug. 2017). 2 Lesley Wroughton and Howard Schneider, '"Bad' Foreign Firms Drive U.S. Manufacturing Jobs Revival," 

Reuters, (June 2017). 3 Department of Commerce Bureau of Economic Analysis, Survey of Current Business Activities of U.S. Affiliates 

ofForeign Multinational Enterprises, (Washington, DC: Aug. 2017). 4 lhid. 

5 lhid. 
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in goods and services from local U.S. suppliers- creating huge opportunities for America's 

small businesses. 6 

Historically, mergers and acquisitions (M&A) make up more than 80 percent ofFDI activity in 

the United States. This is true in most developed countries. Therefore, most of the benefits 

derived from FDI is attributable to M&A activity. Given this reality, it is critical we ensure the 

environment for cross-border M&A remains open. hnportantly, the vast majority of FDI entering 

the United States is in industries totally unrelated to U.S. national security. 

For example, L'Oreal USA leads America's beauty industry in part because of their strategic 

acquisitions oflocal brands such as Kiehl's and Urban Decay. These acquisitions have expanded 

L'Oreal's footprint in the United States to include research, manufacturing and distribution 

facilities across 13 states including Arkansas, California, Florida, Kentucky, New Jersey, Ohio, 

Texas and Washington with a workforce of more than 11,000 employees. 

International companies are also closely tied to their communities. They provide world-class 

workforce training and help strengthen the communities in which they sustainably operate. 

For example, Toyota, whose Kentucky plant is their largest manufacturing facility in the world, 

is applying its manufacturing know-how to help other manufacturers, non-profits, community 

organizations, and government entities develop better ways of doing their day-to-day work. 

Through an organization called the Toyota Production System Support Center (or TSSC), Toyota 

has helped Children's Hospitals reduce infection rates within neonatal intensive care units. As a 

result, infections have decreased by approximately 80 percent. 

America has long been the preferred destination for FDI because of our economy, infrastructure, 

rule of law and workforce. However, competition to attract and retain FDI has never been 

stronger, providing companies with an unprecedented array of options when looking to expand 

into new markets around the world. Unfortunately, over the past few years, the United States has 

seen its share ofFDI dramatically decline, from 37 percent in 2000 to just 24 percent in 2016.7 

Therefore, it is critically important to implement policies that make the United States more 

attractive for international companies- including modernizing the CFIUS process. 

OFII Support for Reforming CFIUS 

OFII has strongly supported the efforts of the Financial Services Committee and others to ensure 

America's open economy does not hamper U.S. national security. OFII members have extensive 

experience with national security reviews conducted by CFIUS, as authorized under Section 721 

of the Defense Production Act of 1950. 

Ten years after Congress enacted the Foreign Investment and National Security Act of 2007 

(FINSA), which extensively amended Section 721, it is timely for this Subcommittee to evaluate 

how Congress's vision for Section 721 has worked, and whether the tools Congress provided to 

address national security concerns arising from foreign investment remain adequate for our 

current economic and security environment. 

6 OFII, Global Investment Provides the Jobs We Need, (Washington, DC: June 2016), 12. 7 UNCTAD, World Investment Report 2017. 

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From the perspective ofOFII members, the Section 721 process has largely achieved FINSA's 

objectives of enabling thorough, nonpoliticized reviews cross-border mergers and acquisitions 

for possible national security concerns. FIN SA, the result of extensive deliberations in Congress, 

laid the foundation for success. Importantly, in 2008, CFIUS engaged in an equally thoughtful 

rulemaking process to implement FINSA. The resulting regulations carefully capture the balance 

that Congress sought, providing helpful guidance on the kind of transactions that are within the 

purview of CFIUS and the wide range of factors relevant to national security assessments. 

CFIUS' annual reports over the past decade generally show that the CFIUS process has 

functioned as expected. The most recent report, for 2015, indicates that once again, CFIUS 

cleared more than half of all filed transactions during the initial review period. Only 11 cases 

(8%) resulted in mitigation agreements, with another 13 notices (9%) being withdrawn.8 These 

numbers are generally in line with those from prior years, and indicate that CFIUS has indeed 

focused its resources on transactions that warrant inquiry. 

A critical factor in the attraction of the United States to foreign investors is our country's 

commitment to the rule of law, and the predictability and stability that regulatory consistency can 

provide. OFII believes that CFIUS has administered Section 721 largely to this end. 

Recent Developments 

Although the CFIUS reports for the past two years will not be available for some time, based on 

publicly available information, and the anecdotal experience ofOFII members, it seems clear 

that the CFIUS process is under stress and that the prior years' pattern of CFIUS outcomes is 

changing. There appear to be more investigations and mitigation agreements, withdrawals of 

cases, and lengthening periods for resolution of cases. CFIUS's interpretations of its regulations 

has also become more unpredictable. 

Many factors contribute to this period of uncertainty. Robust investment activity is occurring in 

the tech sector, and others, where national security concerns particularly reside. New commercial 

innovations, such as mining of big data, present complex new issues for assessment. 

Without doubt, the nature and increased volume of outbound investment from China in recent 

years has influenced the administration of Section 721 by CFIUS and, more profoundly, the 

calculation of national security risk. OFII believes that as CFIUS adapts to new investment 

trends and challenges, it is especially critical to maintain a balanced, reasoned approach to risk 

assessment. 

Supporting FDI With an Efficient and Effective CFIUS Process 

As Congress considers proposals to reform CFIUS, I believe it is critical to remember the linkage 

between economic security and national security. As I referenced earlier, the United States is 

already experiencing a decline in its share of FDI. Unnecessary changes to the process will only 

further decrease U.S. competitiveness for cross-border investment. 

Our member companies report that, although CFIUS staff continue to impress with their long 

hours and attention to the unique circumstances presented by each case, resource constraints are 

8 CF!US, Annual Report to Congress CY2015, (Sept. 2017), 1-2. 

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straining the CFIUS' ability to handle its current workload. The demands of new cases are 

compounded by the requirements of monitoring the increasing number of mitigation agreements. 

OFII thus encourages Congress to review the current organization and funding of CFIUS 

activities. In addition, Congress and CFIUS should explore other ways of administratively easing 

the strain. One would be a "fast track" option that would allow for expedited resolution of 

transactions that lack the complexity or controversy that lead to delayed processing and systemic 

bottlenecks. Such delays in processing ultimately impact business and investment decisions. 

Another area for study is possible efficiencies in the oversight of mitigation agreements. 

CFIUS should not be viewed as the panacea for espionage or trade imbalances. Illegal efforts to 

acquire U.S. technology, such as industrial espionage and cyber hacking, should be aggressively 

addressed, but such efforts are outside the scope and ability of CFIUS. It would be a critical 

error to shoehorn larger espionage concerns into the CFIUS mandate. Likewise, CFIUS should 

not become a way to address concerns that have been expressed concerning trade imbalances. If 

trade reciprocity is viewed to be a problem, Congress should work with the Administration to 

explore, utilize and modernize other tools at its disposal to alleviate those perceived concerns. 

FDI plays a significant role in growing America's economy and creating the jobs our country 

needs. International companies invest in our local communities for the long-term. Efforts to 

reform CFIUS should be undertaken carefully and deliberately. Ensuring fairness, predictability 

and efficiency in national security reviews must remain tenets of the CFIUS process. 

Once again, I thank the Chairman for the invitation to join the Subcommittee this morning and I 

look forward to answering your questions. 

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COUNCILon., 

FOREIGN 

RELATIONS 

December 12, 2017 

Chinese Technology Development and 

Acquisition Strategy and the U.S Response 

Prepared statement by 

Adam Segal 

Ira A. Lipman Chair in Emerging Technologies and National Security and Director of the Digital and 

Cyberspace Policy Program 

Council on Foreign Relations 

Before the 

House Committee on Financial Services, 

Monetary Policy and Trade Subcommittee 

United States House of Representatives 

I st Session, /15th Congress 

Hearing on Examining the Operations of the Committee on Foreign Investment in 

the United States (CFIUS) 

Introduction 

Chairman Barr, Ranking Member Moore, and members of the committee, thank you for the opportunity to 

testify on this important subject. 

While the openness of U.S markets and science and technology (S&T) system is central to economic and 

national security, it is also a threat to those same interests. China in particular has benefited from access to U.S. 

universities, companies, and markets, and the diffusion of technologies and knowledge from the United States 

and other advanced economies has played a role in the acceleration of the modernization of the People's 

Liberation Anny. 

The challenge for policy makers is twofold. First, China's strategy to develop, acquire, and diffuse technology 

for economic and security interests is multifaceted involving investments in research and development, 

industrial policy, protection of intellectual property, talent development, and foreign acquisitions. The U.S. 

response therefore must be similarly broad. Any policy, say reform of the Committee on Foreign Investment in 

the United States (CFIUS} or export control laws, is necessary but not sufficient, and the United State must also 

address Chinese techno-nationalism more broadly. 

the US flOVC!'n11U'1lt. :\lf Sftl.fCIIU'nL~ (?}fact and 
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Second, policy makers must adopt measures to block the flow of critical technologies to potential adversaries 

while not inflicting self-harm. While there are tight links between economic and national security, policies 

should be narrowly focused on preventing the acquisition of technologies that would threaten the U.S. military 

edge, not broader economic competitiveness writ large. This is made more difficult by three factors: 

globalization of science and technology; the tight integration of the U.S. and Chinese S&T systems; and the 

dual-use nature of many frontier technologies, especially artificial intelligence (AI). 

China's science and technology strategy 

The United States is still the world leader in science and technology, but others are increasing their capabilities 

rapidly. A report from the UK Royal Society describes the situation as an "increasingly multipolar scientific 

world, in which the distribution of scientific activity is concentrated in a number of widely dispersed hubs."1 

Middle income countries-including India, Brazil, and China-have expanded their expenditures on R&D, 

increasing their contribution to world R&D spending from 40.8 percent in 2007 to 473 percent in 2013 2 

China's goals in science and technology are particularly noteworthy. The 2006 National Medium- and LongTerm Plan for the Development of Science and Technology states China's goal of becoming an "innovative 

nation" by 2020 and a "global scientific power" by 2050. 3 Beijing sees technological innovation as central to 

ensuring that China does not remain the factory of the world and moves up the value chain-that it shifts from 

"made in China" to "invented in China." Chinese policy makers also have a long history of techno-nationalism 

and want to reduce their technological dependence on advanced economies, especially the United States and 

Japan. In addition, the Chinese leadership sees a tight link between technological and military strength. In an 

address to military delegates at the March 2017 meeting of the People's Congress, President Xi Jinping noted 

that science and technology were "key to military upgrading" and called for "a greater sense of urgency to push 

for science and technology innovation."4 

China's investment in R&D has grown by 20 percent a year since 1999. 5 R&D spending is now approximately 

$233 billion, 2.1 percent ofGDP, and 20 percent of total world R&D expenditure6 China is also now the 

world's largest producer of undergraduates with science and engineering degrees, and Chinese scientists are 

writing a large number of scientific papers, a growing number of which are well-cited. In 1996, the United 

States published more than ten times as many scientific research papers as China. China is now the second 

largest producer of scientific papers after the United States, and has shown large gains in computer science, 

engineering, and AI. Ethnic Chinese authors, for example, account for 43 percent of the top I 00 AI journals and 

conferences. 7 

Science and technology is front and center in the 13th Five-Year Plan (2016-2020). Science and technology 

development is discussed first in the plan and for longer than any other subject. 8 This broad plan is being 

fleshed out through industrial policies designed to raise China's innovation capabilities, three of the most 

important being: an attempt to build an indigenous semiconductor industry; "Made in China 2025"; and the 

"Next-Generation Artificial Intelligence Development Plan." All are strategic initiatives aimed at facilitating 

China's dominance in various high-tech spaces. 

China's 2014 "!C Promotion Guidelines" involves new backing for semiconductors, with reported investments 

between $100 and $150 billion in public and private funds. The goal is to close the gap with other countries in 

the design, fabrication and packaging of chips of all types by 2030; to have Chines firms produce 70 percent of 

the chips consumed by Chinese industry; and to end dependence on foreign supplies. Policy makers have 

likened Chinese dependence on foreign chips to its need for foreign oil; China imported $228 billion of 

integrated circuits in 2016. The government provides capital subsidies to domestic firms, and to foreign firms 

who locate in China, as well as encourages domestic consumers to purchase only from Chinese suppliers. 
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"Made in China 2025" sets out ambitious targets for upgrading China's aging manufacturing base through smart 

manufacturing. This includes integrating automation, smart sensors, and Internet of Things (loT) devices into 

Chinese industry. Borrowing from Germany's 'Industry 4.0,' China sees an opportunity to use industrial 

policies to dominate high value-added industrial sectors like aviation, integrated circuits, next-generation 

information technology, robotics, new energy vehicles, and biopharmaceuticals. The plan offers low-interest 

loans from state-owned investment funds and development banks; assistance in buying foreign competitors; and 

extensive research subsidies.• 

China's "Next-Generation Artificial Intelligence Development Plan" provides a roadmap for China to dominate 

the emerging artificial intelligence space and encourage broad adoption of AI across the economy and society. 

China currently trails the U.S. in terms of producing top-rated AI research and patents. But China has at least 

three advantages: huge data sets; a permissive regulatory environment with very little concern for privacy; and 

significant government support and investment. 

The Next-Generation Artificial Intelligence Development Plan" aims to tum China's AI industry into a "world 

leader' worth RMB 400 billion ($60 billion) by 2025 and a 'premier innovation center' worth RMB I trillion by 

2030 ($150 billion). So far, China's Ministry of Science and Technology has established an AI advisory 

committee with a mix of state scientists and private sector leaders and has enlisted China's largest tech 

companies to join an 'AI national team' and build "open innovation platforms" for several applications of Al. 10 

Cooperation with private companies is a prominent part of China's AI push, with several Chinese companies 

designated as national champions to close the gap between China and the U.S. In February2017, the National 

Development and Reform Commission commissioned Baidu to build a national laboratory for deep learning in 

partnership with two Chinese universities. 11 

Inward investment regime 

Access to the Chinese market has often been predicated on the transfer of technologies. Foreign firms are often 

pressured to license technology to Chinese partners or establish R&D centers within China. General Motors, for 

example, was reportedly precluded from receiving purchase subsidies for the Volt, its electric hybrid car, until it 

transferred engineering knowledge from its three main technologies (electric motors, complex electronic 

controls, and power storage devices) to a joint venture with a Chinese automaker. 12 In April 2010, Beijing 

ordered high-tech companies to tum over the encryption codes to their smart cards, Internet routers, and other 

technology products in order to be included in the goveroment procurement catalog. 13 Firms are also often 

forced into joint ventures, frequently with state-owned actors. These partnerships regularly result in inadvertent 

technology transfer as engineers and managers work together, or more directly from the outright theft of 

intellectual property. 

China's longstanding willingness to turn a blind eye to intellectual property theft has also resulted in widespread 

technology transfer. The problem has been especially prominent in software, where Microsoft estimates that 95 

percent of its Office software and 80 percent of Windows operating system operating in China are pirated. 80 

percent of Chinese goveroment agencies are suspected of running illegal copies of Microsoft and other foreign 

software. 14 While the enforcement of IP law has recently improved, over the long term Chinese firms benefited 

from not having to invest in their own R&D and not paying licensing or royalty fees. 

Foreign acquisitions 

While China's innovation strategy emphasizes "indigenous innovation", it also encourages Chinese companies 

to acquire core technologies and know-how abroad as a means of catching up or leapfrogging the competition. 

There are a number of channels, both legal and illegal, for Beijing to acquire new technology. 
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Foreign purchases have played a large role in the semiconductor strategy. Chinese investment in the United 

States in 2016 was $45.6 billion, and Chinese firms have, according to estimates from the Rhodium Group, 

made about $34 billion in bids for U.S. semiconductor companies since 2015. 15 Tsinghua Unigroup emerged 

from relative obscurity to purchase two Chinese fitms for $2.6 billion. It bought a 51 percent stake in H3C, a 

Hong Kong subsidiary of Hewlett-Packard that makes data-networking equipment, for $2.3 billion. Bids for 

Micron, a big American maker of DRAM (type memory chips used to store data on desktop computers and 

servers), SK Hynix, a South Korean DRAM manufacturer, and Western Digital failed because of political 

opposition. 16 Other Chinese entities have also faced political opposition. In 2016, CF[(JS rejected the sale of 

Aixtron SE of Germany to China's Fujian Grand Chip Investment Fund. In September 2017, President Trump 

blocked Canyon Bridge Capital Partners LLC, a China-backed buyout fund, from acquiring Lattice 

Semiconductor Corp for $1.3 billion. 

In other instances, China has purchased portions of large semiconductor companies, perhaps to stay under the 

threshold for investigation. Jiangnang Asset Management Co. Ltd. (JAC Capital), for example, bought NXP's 

RF Power business for $1.8 billion. 17 The sources of Chinese investment are opaque. Unigroup, a commercial 

entity spun off from Tsinghua University, appears to receive significant financial support from the government. 

The owner of Fujian Grand Chip Investment Fund, for example, is a private businessperson, Liu Zhendong. But 

Sino IC Leasing, a subsidiary of the National IC Fund, offered to provide a loan of 500 million to make the 

Aixtron deal possible. Moreover, in the months before Aixtron sought new investors, its share price tumbled 

after Fujian-based San'an Optoelectronics cancelled a large order of machines in late 2015. A report from the 

Mercator Institute of China Studies suggests a close relations between San'an, Fujian Grand Chip, and the 

National IC Fund. The parent company ofSan'an Optoelectronics, the San'an group, owns shares in Sino 1C 

Leasing. 18 This lack of transparency makes it difficult to differentiate between economic and strategic 

motivations for a purchase. 

In the face of this growing scrutiny, Chinese entities appear to be pursuing other means of acquiring technology 

in order to circumvent oversight. According to a 2017 report from the Defense Innovation Unit Experimental, 

China is participating in an increasing number of venture deals, about l 0 percent of all ventnre deals in 2015 up 

from a 5 percent average participation rate during 2010-2016. Beijing is especially active in the areas of 

artificial intelligence, autonomous vehicles, augmented/virtual reality, robotics, and blockchain technology. 

Baidu, for example, is partnering with Comet Labs, a San Francisco-based fund specializing in machine 

intelligence. In August 2016, Baidu and Ford jointly invested $150 million in Velodyne, a maker ofLiDAR 

sensors, which are an important component of self-driving car technology. The company began developing 

sensors for driverless cars after participating in a DARPA competition in 2005 and has since sold its technology 

to the Navy for umnanned surface vehicles. 19 In April2016, state-backed Haiyin Capital made a minority 

investment in Neurala, which is developing AI technology that can automate self-driving cars, robots, and 

droncs 20 According to the New York Times, Neurala's CEO had been in talks with the U.S. Air Force about a 

partnership, but grew fiustrated by the slow pace at which talks progressed. A report from Defense Group Inc. 

stated that Huiyin's investment in Neurala creates uncertainty over China's access to the company's source 

code and whether Neurala's technology is secure for U.S. end-users. 21 

Cyber and industrial espionage 

China also acquires foreign technology through cyber and industrial espionage. During this decade, Google, 

Nasdaq, DuPont, Johnson & Johnson, General Electric, RSA, and at least a dozen others have had proprietary 

information stolen by Chinese-based hackers. A 2013 private commission, chaired by Dennis Blair, former 

director of national intelligence, and Jon Huntsman, former ambassador to China, argued that the annual "losses 

are likely to be comparable to the current annual1evel of U.S. exports to Asia--$300 billion." Cybersecurity 

companies noted a significant decline in Chinese activity after the 2015 agreement between President Obama 

and President Xi, in which both sides agreed not to hack each other's private companies for commercial gain. 
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Recent reporting suggests, however, that China is pushing the envelope, going after technologies that are dualuse, and so might not be covered by the agreement, as well as some civil society groups. 

In the physical world, Chinese nationals have been charged in the theft of radiation-hardened microchips, 

precision navigation devices, the processes for high-volume manufacturing of chips used to light and electrify 

flat-screen TVs and smartphones, and other technologies. In addition, according to a recent report for the U.S.-

China Economic and Security Review Commission, the theft of American technology is often conducted 

through China's science and technology institutes and industrial enterprises. 22 The "key modality is no longer 

the spy," according to Jim Richberg, former deputy national counterintelligence executive, "but the 

businessman, student, or academic." 23 

National security implications 

Science and technology diffusion has and will continue to improve Chinese military capabilities. Shifting 

research centers to China and developing collaborative business relations with Chinese companies involves 

American institutions in the diffusion process, inadvertently speeding Beijing's military modernization. In 

China, the shipping and telecommunications sectors have made steady improvements in R&D and production 

through their engagement with the international economy and these technological capacities have been 

converted into new military capabilities.24 The 2011 report from the U.S.-China Economic and Security 

Review Commission argues that U.S. aerospace companies may have unknowingly assisted Chinese military 

modernization. 

The newest wave of Chinese investment in sensitive technologies such as robotics, AI, and sensors is a further 

threat to the U.S. technologicaJ edge. Some of these technologies will inevitably end up in the hands of 

enterprises and universities with tight links to the PLA. Moreover, Chinese investment in high-tech fmns could 

prevent U.S. government or military investment and cooperation with those same companies. 25 

In addition, Chinese leaders are intent on building a system that allows the military to take advantages of gains 

in the civilian economy. Civil-military fusion [1j': EI';/Mli;- junmin ronghe] is a pillar of Chinese military 

modernization and an effort to bolster the country's innovation system for advanced dual-use technologies in 

industries like aviation, aerospace, and information technology. Introduced by former President Hu Jintao in 

2009, the effort to bridge the gap between the civilian industrial base and the military has intensified under 

President Xi Jinping. Within his first year in office, the Central Committee voted to elevate civil-military fusion 

to a national strategy, and in January 2017 Xi created the Central Commission for Integrated Military and 

Civilian Development, a new high-level decision making and coordination body for civil-military fusion 

efforts26 

Civil-military fusion plays a prominent role in both "Made in China 2025" and the "Next-Generation Artificial 

Intelligence Development Plan." Emerging technology like AI, drones, robotics, and big data are already 

blurring the line between technology intended for military and commercial purposes; China's strategy has been 

to treat military and commercial technological developments as two-sides of the same coin. For example, 

prominent AI researchers like Le Deyi, who is the head of the China Association for Artificial Intelligence, 

participate in research with commercial enterprises and hold rank in the People's Liberation Army. 

Policy challenges 

Any attempt to prevent technology flowing to China and improving military capabilities is complicated by at 

least three factors. First, as noted above, innovation is increasingly global, and there are few technologies that 

the U.S. monopolizes. Even in artificial intelligence, which seems to be shaping up as a two-way race between 
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the United States and China, there are clusters of excellence in the UK, Canada, and Israel. Any U.S policy will 

have to be sensitive to the fact that there are other sources of technology. 

Second, the border between "American" and "Chinese" science and technology is no longer as sharp as 

international R&D networks and business collaborations expand. China-based scholars, for example, choose to 

coauthor with U.S. colleagues more frequently with those from other countries; nearly 40 percent of China's 

science and engineering publications in international journals had U.S.-based coauthors. The information 

technology sector is particularly interconnected, stretching across the Pacific and involving Chinese, American, 

and Taiwanese entrepreneurs, designers, managers, and technicians. Research and development in AI is likely 

to replicate this pattern. A number of high profile researchers like Andrew Ng have moved from U.S. 

universities and companies to Chinese fmns and then back again. As a result of this interconnection, policies 

designed to prevent the flow of technology or people could have a negative impact on U.S. capabilities. 

Finally, the list of purely military technologies that the United States can control has become very narrow. Most 

of the technologies underlying the AI and robotics revolutions will be dual use. There is, for example, likely 

very little to distinguish the technology in a self-driving car and a self-driving tank. 

Policy recommendations 

Given these challenges, three principles should guide U.S. policy making. 

First, CFIUS reform should be small part of the U.S. response to Chinese technology development and 

acquisition. Trade efforts to combat techno-nationalism and remove coercive policies to transfer technology are 

especially important tools to prevent the uncontrolled diffusion of technology and knowledge to Beijing. A 

great deal of technology transfer happens under the threshold ofCFIUS (or export controls) but under pressure 

from and in retom for market access to China. 

In addition, some of the worry about China's rise as a science and technology power is compounded by a fear 

that the United States has been distracted, neglecting science and underfunding basic research. Several top 

science posts in the White House remain vacant. The president's budget request includes significant cuts of the 

budgets of the National Science Foundation, National Institute of Health, and Environmental Protection 

Agency, and the new tax law has a negative impact on science, taxing tuition waivers used by graduate students 

in science, technology, and mathematics. 

Second, unilateral action will be of limited use. China is expanding its science and technology partoerships with 

Europe, Israel, India and others. Unless Washington and its friends agree to a similar set of technologies to 

control, Beijing will easily elude U.S. policy. Past attempts to control dual-use technologies do not provide a 

great deal confidence, however, that the United States and its partners can create an effective framework for the 

next generation of innovation. 

Third, for any reform effort to succeed, CFIUS will require greater capacity. It will need more capacity to 

handle new investigations on top of what is already a large volume of cases. It will need more capacity to 

discern the sources of Chinese investment-who is behind an investment and if the motivation is economic, 

strategic, or some combination. It will also need new mechanisms to tap into academic and commercial 

expertise to better understand the development trajectories of frontier technologies and what their relationship to 

military capacity may be. 

1 "Knowledge, networks and nations: global scientific collaboration in the twenty first century" (Royal Society, London, March 

2011) available: http:/lroyalsocicty.org/uploadedf'iles/Roya1 Society Contcntipolicyfpublications/2011 f4294976134.pdf. 
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2 "UNESCO Science Report: Towards 2030," (UNESCO Publishing: 2016), https:llcn.unesco.org/unesco science report. 

3 "The National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)," State Council, 

People's Republic of China, https:!fwww.itu intlen!JTUDfCybe{g;curitvfDocumcnts/Natipnal Strategies Rq!_ositm:y/China "006.pdf. 

4 "China's Xi pushes advanced technology for military," Reuters, March 12, 2017 http~~cuters.crull}_4ni~l£/us-chinaparliamcnt-defence/china.<>-xi-pushes-advanced-technology{or-military-id USKBN 16K02V. 

5 Gautam Naik, "China Surpasses Japan in R&D as Powers Shift," Wall Street Journal, December 10, 2010, 

lill:;1"f/www.wsj.<:Qlllj_artides/SB 1000 l4240527_1lQQJ2>4204.17601971 ~2.U§Jl1354. 

6 Reinhilde Veugelers, "China is the world's new science and technology powerhouse," Bruewl, August 30,2017, 

http: lfbruegel.org 120 1 7/08/china-is-the-worlds-new-science-and-technology-powcrhousej. 

7 Kai~Fu Lee and Paul Triolo, «China's Artificial Intelligence Revolution: Understanding Beijing's Structural Advantage,"" Eurasia 

Group, December 2017, https:!lw\vw.eurasiagroup.netlfileslupload/China Embraces ALpdf. 

8 Scott Kennedy and Christopher K. Johnson, "Perfecting China, Inc.: The 13th Five~ Year Plan," Center for Strategic and 

International Studies, May 2016, https: Ucsis·prod.s3.amazonaws.comls3fspublic/publication/160521 Kennedv PerfectingChinainc \Veb.pdf. 

9 Keith Bradsher and Paul Mozur, "China's Plan to Build Its Own High* Tech Industries Worries Western Businesses," New York 

Times, March 7, 2017 h..t!IL~~·~ny.ti.mes.com/20 17103!07 lbusine_;;JUchina-~radc-manufacturing-curopc.html 

10 "China recruits Baidu, Alihaba and Tencent to AI 'national team,"' South China Morninfj Post, November 21, 2017, 

http:l/v-.,vw .scmp.comltech/china-tech/artidc/2120913/china-recruits-baidu-alibaba-and-tcncent-ai-national-tearo... 

11 "China's first 'deep learning lab' intensifies challenge to US in artificial intelligence race," South China Morning Post, February 

21,2017, http:ll\\<ww.scmp.com/te~.;hfchina-ted1fartide/2Q72692lchinas~tlrst-deep~learning-lab-intensifies-chaHenge~usartifidil_. 

12 Robert D. Atkinson, "Enough is Enough: Confronting Chinese Innovation Mercantilism," The Information Technology & 

Innovation Foundation, February 2012, http: Uwww 2.itif.orgf20 12-en_(mgh-enough-chinesemercanti\ism.pdf? ga~2 8067221 5.1914 708704.\5\3087866-!294095666.1513087866. 

13 Adam Segal, "China's Innovation Wall: Beijing's Push for Homegrown Technology,"' Foreign Affairs, September 28,2010, 

http:/hv,vw.foreignaffairs.com/articlcs 66753/adam~segallchinas-innovation-wall. 

'~- Enough is Enough: Confronting Chinese Innovation Mercantilism 

15 Bob Davis and EvaDou, "China's Next Target: U.S. Microchip Hegemony," Wall Street Journal, July 27,2017, 

hUps: llwww. wsj.comlartidcsfchinas~ncxt-targct-u-s-microchip-hcremony-150 116830 3. 

16 <~chips on their shoulders," The Ecotwmist, January 23,2016, h.llp£Jj,yV\-vw.economist.com/newsfbusincss:/21688871-chinawants-becomc-superpowcr-scmiconductors-and-plans~spcnd-colossal-sums. 

17 Junko Yoshida, Lurking Behind Every M&A Is China, EE Times, December 13,2016, 

https://w\vw.eetimes.com/documen~doc id= 1330969. 

18 "Made in China: The making of a high~tech superpower and consequences for industrial countries,'' Mermtor Institute for China 

Studies, December 2016, 

https:IIW\V\v.merics.orglfileadmin/user u:pload/dO\vnloadsiMPOC/MPOC Made in China 2015/MPOC No.2 Madcin.Chilli!. 

_2_02.\.pdf. 

19 Evan Ackerman, "Ford and Baidulnvest$150 Million in Velodyne for Mfordable Lidar for Self~ Driving Cars," IEEE Spectrum, 

August 17, 2016, http.s: Uspectrum.ieee.org!cars-that-thinkJtransportationfscnsors/ford~and-baidu-invest~ 150-million·invelodyne-for-affordable-automotive-lidar; Paul Mozur and Jane Perlez, "China Tech Investment flying Under the Radar, 

Pentagon Warns," New York Times, April 7, 2017, llttps://\\rww .nytime$.,g)mf_:!.Q.l7 /04/07 /businesslchin<!:dllc.DAt;;::B.ti!f_t:'JJ,p~<;-= 

;p£llt~gQil-technology.html? r= l. 
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20 Hiawatha Bray, "Boston firm's artificial intelligence technology may have broader applications," Boston Globe, August 14, 

2017, hrtps:lhvww .hostonglobe.comlbuc;iness{l017/081141boston~startup-builds-mobilcbrains/CJcreJj\VZRvOcaynAK1D\VO/story.hrm1. 

21 Defense Group Inc. "China's Industrial and Military Robotics Development," US-China EcotWmic and Security Review 

Commission, October 2016, Pg, 105, available at: 

h!:!p§~:w-w,.y.,K~~v/sites/Jcfault/files/RescarchfDGf China0 h27s%20Jndttstrial%20and%20Military%20Robotics%20Develo 

pmcnt.pdf. 

22 "China's Program for Science and Technology Modernization: Implications for American Competitiveness," Prepared for The 

U.S.-China Economic and Security Review Commission, January 2011, https:lhv-..v'\v.uscc.govfRcscarch/china%E2%80%99sP.TO?ram-sciencc-and-tcchnology-modernization-impJications:.i!IDt'.rican-mrnpetitiv~:.m:£!. 

23 Jim Richberg. "The Counterintelligence Implications of Deemed Export Control," Workshop on the Globalization of the 

University and Deemed Export Policy, Oak Ridge Center for Advanced Studies, March 6-7,2006. 

24 EvanS. Medeiros, Roger Cliff, Keith Crane, James C. Mulvenon, "A New Direction for China's Defense Industry," RAND, 

https;/[,-..·ww.rand.org/pubslmonographs/MG334.html. 

25 Chinese Investment in Critical U.S. Technology: Risks to U.S. Security Interests: Insights from a CFR Workshop, October 16, 

201 7, https:/ fwww .cfr.orgfreportfchinese-invcstment-critical-us~technology-risks-us-security-intercsts 

26 Xi to head central commission for integrated military, civilian development," Xinhua, January 22,2017, 

http:jlne'\vs.xinhuanct.com/english/2017 -01 121!c 136004 7 SO.htm. 
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United States House of Representatives 

Committee on Financial Services 

Subcommittee on Monetary Policy and Trade 

Examining the Operations of the Committee on Foreign Investment 

in the United States (CFIUS) 

Opening Remarks of The Honorable Kevin J. Wolf 

Partner, Akin Gump Strauss Hauer & Feld LLP 

Former Assistant Secretary of Commerce for Export Administration (2010-2017) 

December 14, 2017 

Chairman, Ranking Member, and other distinguished members of the subcommittee. 

Thank you for convening this hearing and for inviting me to testify on this important 

national security topic. 

For nearly 25 years in both the private sector and government, I have focused my 

practice on the law, policy, and administration of export control and related foreign direct 

investment issues. From 2010 to 2017, I was the Assistant Secretary of Commerce for 

Export Administration. In this role, I was primarily responsible for the policy and 

administration of the U.S. dual-use export control system and, as a result of the Export 

Control Reform effort I helped lead, part of the defense trade system. I was also during 

this time a Commerce Department representative to the Committee on Foreign 

Investment in the United States (CFIUS), particularly with respect to cases involving 

technology transfer issues. 

Although I am now a partner at Akin Gump Strauss Hauer & Feld LLP, the views I 

express today are my own. I am not advocating for or against any potential changes to 

CFIUS or its legislation on behalf of another. Rather, I am here to answer your 

questions about how the CFIUS and export controls systems work and how they could 

or could not address whatever policy issues you would like to discuss. I will not speak 

about any specific case that was or is before CFIUS. 

My fellow panelists have already described the content and scope of CFIUS, so I will 

get straight to my main point, which is that the CFIUS and export control systems 

complement each other. CFIUS has the authority to control the transfer of technology of 

national security concerns, but only if there is a covered transaction, however defined. 

The export control rules regulate the transfer of specific or general types of technology 

of national security, foreign policy, and other concerns regardless of whether there is a 

covered transaction. This means that if concerns arise about specific or general types 

of technology-- whether as part of a CFIUS review or from any other source-- then the 

export control system can and should control the technology to the specific destinations, 

end uses, and end users of concern. 
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Identifying, describing, and deciding how or whether to control dual-use technologiesthat is, technologies that have both benign commercial applications and applications of 

concern - is inherently complex. The export control system is also complex, but its 

authority to control the transfer of technology for national security, foreign policy, or 

other reasons is not limited by the need for a transaction. Moreover, the system is 

designed to constantly evolve as new threats are identified, new technologies of 

concern are discovered, and widespread commercialization makes existing controls 

unnecessary or impossible to implement. 

The Export Administration Regulations (EAR), implemented by the Commerce 

Department's Bureau of Industry and Security (BIS), have the authority to impose such 

controls in coordination with other departments, primarily Defense, State, and Energy. 

The descriptions of technology in the regulations can be as broad or as narrow as the 

national security or foreign policy concerns warrant. They are generally connected to 

physical commodities, but do not need to be. They could be based on a technology's 

technical parameters, end uses, or merely just a reference to the name of the 

technology. After a technology or other item is identified, the controls on its transfer can 

be tailored in the regulations to apply to the whole world or to specific destinations, end 

uses, and end users to address specific concerns. The control choice is a function of a 

national security and foreign policy judgment to be made on a technology-by-technology 

basis and regardless of the existence or nature of any underlying commercial 

transaction. 

Most of the EAR implement U.S. commitments to one of four multilateral export control 

regimes. These are groups of roughly 30-40 countries that have generally agreed to 

control the transfer of missile, nuclear, chemical/biological, military, and other items of 

common concern in similar ways. The advantage to such controls is that our regime 

allies impose essentially the same controls on their exporters. However, the process for 

achieving consensus from the member states can take a long time, and the limited 

resources and time available to the regimes limit the number of proposals that can be 

considered in a review cycle. These disadvantages are outweighed by the well-tested 

conclusion that unilateral controls -- those that only one country imposes -- are 

generally counterproductive because they create incentives for foreign companies to 

develop the technology outside of the country's control. In the long run, they only hurt 

industry in the country imposing the control and do not deny the technology at issue to 

the destination of concern. Indeed, this is why the multilateral systems were created 

decades ago. 

The imposition of unilateral controls, however, can be an effective short-term technique 

for regulating the export of unlisted sensitive technology. It is with this thought in mind 

that in 2012, I and my colleagues at Commerce created a novel tool in the EAR to 

quickly and unilaterally control emerging and other unlisted technologies that warranted 

control, so long as the technology was eventually submitted to the relevant regimes to 

be controlled multilaterally. 1 This is referred to as the "OY521" series of controls in the 

1 See 77 Fed. Reg. 22191 (Apr. 13, 2012). 

2 
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EAR, which mirrors similar authority in U.S. Munitions List Category XXI in the State 

Department's International Traffic in Arms Regulations. 2 

There are many additional tools within the EAR to address technology transfer 

concerns. For example, BIS could, with or without a public notice and comment 

process, add unilateral controls over types of emerging technologies to the control list 

and control them with a licensing or notification requirement to specific destinations. If 

the concern is about specific end users, then controls can be placed on those end users 

through the Entity List, the Unverified List, or amending the military end-user controls. 3 

Another tool is the "is informed" authority. Basically, BIS has the authority to inform an 

exporter in certain cases that licenses are required to export otherwise uncontrolled 

technologies and other items to specific destinations or specific end users. 4 If the 

existing authorities in the EAR are too narrow to address a new concern, then they can 

be easily amended. If, for example, a policy concern pertains to types of industrial 

know-how and capabilities that are hard to define as technologies, then the EAR could 

be amended to impose notification or licensing controls on specific types of services 

provided to particular end uses (such as for intelligence activities). 

The precursor to using any of these tools is, of course, identifying the emerging or other 

unlisted technologies of concern. Admittedly, the focus of the previous administration's 

export control reform effort was defense trade. Hundreds of individuals put in 

thousands of hours over the course of eight years to develop and refine after massive 

public input from scores of Federal Register notices revisions to controls affecting 

hundreds of thousands of defense and related items. Although the revised control lists 

(intentionally) require constant tweaking, we made the system significantly better and 

enhanced our national security as a result. 

Whether as part of CFIUS reforms, a new export control reform effort focused on dualuse technologies, or just day-to-day good government, there should be a regular, 

robust, and creative whole-of-government effort, working closely with industry and our 

allies, to identify technologies that, for national security or foreign policy reasons, 

warrant control or decontrol. This is already done as part of the regular annual process 

to propose changes to the multilateral regime controls. but a fair question raised by this 

hearing is whether a more aggressive, better-resourced effort is needed to analyze 

novel and emerging unlisted technologies. 

In addition, existing export control law enforcement authorities must be used to ensure 

that those who are developing or transferring technologies of concern have 

comprehensive programs to ensure compliance with the rules, regardless of whether 

the company is domestic or owned by a foreign entity. (The export control rules apply 

equally to companies in the United States regardless of whether they are foreignowned. U.S. export control rules also apply to and regulate U.S.-origin technology and 

2 See22C.F.R. § 121.1. 3 See 15 C.F.R. Part 744. 4 Seeid. 

3 
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other items even when they are outside the United States and owned by foreign 

persons.) 

Given my combined CFIUS and export control backgrounds, my opening comments 

have focused on the technology transfer aspects of CFIUS. Other types of national 

security issues implicated by foreign direct investment include those that: 

(i) have co-location issues (e.g., acquisitions next to military facilities); 

(ii) create espionage risks or cybersecurity vulnerabilities; 

(iii) could reduce the benefit of U.S. Government technology investments; 

(iv) reveal personally identifying information of concern; 

(v) create security of supply issues for the Defense Department and other 

government agencies; 

(vi) implicate national security-focused law enforcement equities or activities; 

or 

(vii) create potential exposure for critical infrastructure, such as with the 

telecommunications or power grids. 

Each of these topics warrants its own, separate analysis and commentary when 

considering possible changes to CFIUS. 

In my experience, the existing CFIUS structure, authorities, and internal procedures 

generally allowed for the resolution of these issues quite well. The Treasury 

Department was an excellent honest broker and facilitated consensus conclusions -

often after lengthy interagency discussion and always with the terrific support from the 

intelligence community. The agencies were always respectful of the need for a wholeof-government decision that accounted for the particular equities and expertise of the 

other agencies. The career staff were and remain talented, dedicated public servants. 

This last point is key. Given the increase in filings and the increase in more complex 

cases, the staff was stretched thin when I was there, and I expect they are even more 

stretched now. They need help. They need more resources, particularly aimed at those 

involved in monitoring mitigation agreements and studying transactions. I make this 

polite suggestion not only for their benefit but also for the sake of our national security. 

also make the suggestion so that the U.S. remains known as a country that welcomes 

foreign direct investment with the minimum necessary and quickest possible safeharbor review burden. 

4 
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Thus, when considering changes to CFIUS to address national security concerns 

associated with foreign direct investment (such as those in the list I just mentioned), the 

questions I would ask are whether 

(i) the statutory authority already exists to address the issue through a 

regulatory or process change; 

(ii) another area of law-- such as trade remedies, government contracts, or 

export controls -- could address the issue more directly and without 

collateral consequences on foreign investments of less concern; or 

(iii) the solution lies simply in more resources to the agencies. 

If the answer to any of these questions is "no," then that is the sweet spot for 

consideration of change to CFIUS legislation. 

For each possible change in CFIUS's scope, however, it is vital to weigh the costs. For 

example, if there is even a small expansion in the scope of CFIUS's review authority, 

then some companies may be less willing to invest in the United States with the actual 

or perceived extra burden and time involved in closing a transaction, particularly if there 

is not a significant expansion in staff. Will investing in other countries become more 

desirable as a result of any changes? With every expansion in scope, there will be a 

corresponding and exponential expansion in burdens and costs generally. More 

regulations lead to more words, which leads to more analyses of those words in novel 

fact patterns, leading to more filings, more reviews, more mitigation agreements, and on 

and on. Also, if legislation becomes too prescriptive, then it may limit the ability of the 

Administration and staff to resolve novel national security issues in a creative way. 

There were many such situations over the course of the last seven years that I suspect 

could not have been contemplated by the original drafters of the legislation and the 

regulations. 

National security concerns are, of course, paramount and should guide any final 

decisions. I absolutely agree with my former Defense Department colleague Alan 

Estevez that the United States never wants to be in a fair fight and the right, 

aggressively enforced technology transfer, investment, and other controls are a critical 

part of maintaining that advantage. I am absolutely not suggesting that they be ignored 

or traded off for other concerns, but only that they are properly calibrated so as not to 

create unintended or unnecessary consequences. I am also not suggesting that export 

controls are the solution to all policy concerns, only that they be used to their fullest 

possible extent because they can be more tailored. These are intensely difficult 

decisions to make and cannot be made on the fly without a process and without the 

input of all those with expertise and an equity in the outcome. Also, the right answer for 

one type of technology will not be the same for another type of technology. 

Finally, when considering any changes to the system, it is important to consider how our 

allies are controlling or considering controls over foreign direct investment into their 

5 
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respective countries. Just as the objectives of export controls are furthered by 

multilateral cooperation, multilateral coordination among allies over foreign direct 

investment issues could be of common benefit. At a minimum, the US CFIUS process 

could significantly benefit if there were more authority to share facts and concerns with 

our allies, after business confidential and classified information issues were addressed. 

On export control and CFIUS topics, I have a three-minute, a thirty-minute, a three-hour, 

and a three-day version. So, I will stop here with these general opening comments and 

look forward to answering your questions. Thank you again for spending the time to 

think through this complex and important national security issue. 

6 
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THE OFFICE OF CONGRESSMAN ROBERT PITTENGER 

FOREIGN INVESTMENT RISK REVIEW MODERNIZATION ACT 

(FJRRMA), H.R. 4311 

SUMMARY 

China is weaponizing its investment in the U.S. to exploit national security vulnerabilities, including the backdoor transfer of dual-use U.S technology and related know-how, aiding China's military modernization and 

weakening the U.S. defense industrial base. This has exposed serious gaps in the existing CFlUS process, and 

the real impacts to our national security may not be fully realized for years to come. 

STATEMENTS OF SUPPORT FOR CFIUS REFORM 

U.S.-China Economic and Security Review Commissiou: "China appears to be conducting a 

campaign of commercial espionage against U.S. companies involving a combination of cyber espionage 

and human infiltration to systematically penetrate the information systems of U.S. companies to steal 

their intellectual property, devalue them, and acquire them at dramatically reduced prices." 

Former Secretary of Commerce Penny Pritzker: Criticized the Chinese government for its ongoing 

campaign to "spend $150 billion to expand the share of Chinese-made integrated circuits in its market 

from 9 percent to 70 percent by 2025." She said that this "unprecedented state-driven interference 

would distort the market and undermine the innovation ecosystem ... no government should require 

technology transfer, joint-venture, or localization as a quid-pro-quo for market access." 

Secretary of Defense James Mattis: Stated that "rapid technological change" is one of several 

concurrent forces acting on the Defense Department, and it includes "developments in advanced 

computing, big data analytics, artificial intelligence, autonomy, robotics, miniaturization, additive 

manufacturing, meta-materials, directed energy, and hypersonics- the very technologies that ensure we 

will be able to fight and win the wars of the future." He recognized that many oftbese advances are 

driven by the commercial sector, and that "new commercial technologies will change society, and 

ultimately, they will change the character of war." 

Dan Coats, Director of National Intelligence: "I certainly think that, given China's aggressive 

approach relative to information gathering and all the things that you mentioned merits a review of 

CFIUS in terms of whether or not it is-- needs to have some changes or innovations to address the 

aggressive Chinese actions not just against our companies, but across the world." 

Mike Pompeo, Director of the CIA: Stated that CFIUS "mostly deals with changing control 

transactions, purchases. There are many other ways one could invest in an entity here in the United 

States and exert significant control over that entity, I think that ought to be looked at." 

• Admiral Michael Rogers, Director of the NSA (and Commander of U.S. Cyber Command): Stated 

"I think we need to step back and reassess the CFlUS process and make sure it's optimized for the world 

of today and tomorrow, because I'm watching nation-states generate insight and knowledge about our 

processes. They understand our CFIUS structure. They understand the criteria, broadly, that we use to 

make broader policy decisions about, is an investment acceptable from a national security 

perspective. And my concern is -- you're watching some nation-states change their methodology to to 

try to get around this process." 

For more information, plea'ie contact tbe Office of Congressman Robert Pittenger at (202) 125~1976 
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Attorney General Jeff Sessions: Was asked by Sen. Comyo whether he supports the effort to 

modernize and reform the CFIUS process to deal with this threat to national security. "I absolutely 

do. We have looked at that hard in the Department of Justice. I have talked with attorneys and agents 

who have investigated these cases. They are really worried about our loss of technology. We certainly 

need additional legislation. Just as you said, you can buy an interest in a company and gain access to the 

same type of technology. The CFIUS program is not able to be effective enough. Your legislation [the 

Comyo bill] is first-rate. We tlrink it has great potential to push back against the abuses and dangers we 

face. I'm excited about it, and anything I can do to say, publicly, thank you for that work and to call on 

Congress to move on it rapidly. You would be winning the confidence and support of people who 

investigate these matters every day and know what's going on. They support what you're doing, and I 

hope Congress can follow through." 

Steven Mnuchin, Secretary of the Treasury: At a House Financial Services Committee hearing on 

July 27, 2017, said this about CFIUS reform: "I hope this is something we can definitely do on a 

bipartisan basis. There are some obvious changes we need to make to CFIUS- one of which is CFIUS 

doesn't cover joint ventures. But as we've had the opportunity to talk about, and we look forward to 

working with you and others, there's a laundry list of changes that we look forward to making with 

you." When asked whether he agreed that this issue is pressing, he agreed that it is. 

Wilbur Ross, Secretary of Commerce: At a public forum on June 12, 2017, said: "Where I think 

CFIUS is weak- and there's a lot of talk within the administration about trying to build it up- it doesn't 

deal with joint ventures and it really tends to focus more on big companies. But to me one of the real 

dangers is not the giant companies, but two young kids in a garage somewhere that are onto some new 

technology, and [CFIUS] isn't very well set up to deal with that." 

Admiral Dennis Cutler Blair, former Director of National Intelligence and former commander of 

U.S. forces in the Pacific region said: "As co-chair of the Commission on the Theft of American 

Intellectual Property, I welcome the much-needed CFIUS reforms provided in the Foreign Investment 

Risk Review Modernization Act (FIRRMA), especially with regard to the inclusion of IP protection as a 

factor to be considered in the CFIUS review process. The IP Commission has long argued for this 

provision. By expanding the scope of CFIUS reviews, FIRRMA provides better tools to analyze foreign 

investments and thus will strengthen the protection of America intellectual property from theft by 

foreign actors. n 

Larry Wortzel. Commissioner, U.S. China Economic and Security Review Commission: "The 

Committee of Foreign Investment in the United States (CFIUS) was created in a time of substantially 

less foreign investment and to address challenges which have increased in complexity and sophistication 

in the last decade. Today, United States security is challenged in particular by a determined, centrally 

controlled effort by China to acquire the most advanced U.S. technology and to acquire large segments 

of our economy and industry. Senator Comyn's Foreign Investment Risk Review Modernization Act 

updates the law to better protect U.S. national security assets and close loopholes in the existing 

statute .. .Innovation is an inaportant driver of U.S. economic prosperity, and U.S. laws must keep pace 

with a rapidly evolving tech landscape. Senator Comyn's Foreign Investment Risk Review 

Modernization Act helps prepare the United States to meet these new challenges and mitigate risks 

posed by current and emerging security threats." 

For More Information 

• This legislation mirrors legislation being introduced by Sen. John Comyo in the Senate. 

Please contact Brian Kennedy, Brian.Kennedyl@mail.house.gov for more information. 

For more information, please contact the Office of Congressman Robert Pittenger at (202) 225~1976 
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Alan F. Estevez 

Representative Gwen Moore 

Subcommittee on Monetary Policy and Trade 

Hearing 

Evaluating CFIUS: Challenges Posed by a Changing Global Economy 

Questions for the Record 

Section 3(a)(5)(B) of the proposed legislation would treat as a covered transaction any 

transaction involving the contribution by a US critical technology company of intellectual 

property and associated support. The legislation defines a US critical technology company as 

any company that produces, trades in, designs, tests, manufactures, services or develops critical 

technologies. The definition in the proposed legislation of"critical technologies" is very broad 

and leaves room for further expansion through regulations. 

Can each of the witness please answer the following questions: 

The proposed legislation covers contributions of IP by critical technology companies, but 

as written, the IP could relate to any kind ofiP that the company possesses. Shouldn't 

we focus specifically on the contribution of IP related to critical technologies, and not 

other kinds of technology that a US critical technology company happens to possess? 

I beleive that CFIUS should focus on only the contribution of!P related to critical 

technologies, not general IP, when reviewing transactions. However, in order for CFIUS 

to understand what IP companies propose to transfer in an arrangement, such as a joint 

venture, and to determine whether that IP relates to critical technologies, CF!US would 

need tiJ have visibility of the proposed transfer as a part of covered transaction. The 

CFIUS regulations need to be clear that only transfer of critical technology IP will be 

considered a covered transaction. 
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Alan F. Estevez 

Questions for Record 

Of 

Representative Gwen Moore 

Subcommittee on Monetary Policy and Trade 

Hearing 

Evaluating CFJUS: Challenges Posed by a Changing Global Economy 

Section 3(a)(5)(B) of the proposed legislation would treat as a covered transaction any 

transaction involving the contribution by a US critical technology company of intellectual 

property and associated support. The legislation defines a US critical technology company as 

any company that produces, trades in, designs, tests, manufactures, services or develops critical 

technologies. The definition in the proposed legislation of "critical technologies" is very broad 

and leaves room for further expansion through regulations. 

Can each of the witness please answer the following questions: The current CFIUS 

regulations already define "critical technologies" with specific reference to export 

controlled regulations? CFIUS has said on page 37 of its most recent annual report that 

export control regulations "were determined to be the most reliable and accurate means 

of identifying critical technologies." If that's the case, then there is no apparent reason to 

change that definition, and it would seem that the best way to deal with the transfer of 

critical technologies is through the export control regulations, not CFIUS. Don't you 

agree? 

The Export Control Regulations are a reliable guide to identifying critical technologies. 

However, in todays the rapidly changing technology environment, the Export Control 

regulation cannot be the only measure as to whether a technology is a critical 

technology. During my time in the Department of Defense, we consulted with technology 

experts from the Department's laboratories and experimental units, as well as with our 

acquisition experts, to determine if the technology involved in a any particular CFIUS 

case should be considered a critical technology that should not be eligible for transfer to 

a given nation. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investment in the United States" 

Monetary Policy and Trade Subcommittee 

December 14,2017 

Rep. Andy Barr (R-KY) 

Questions for the Record 

1. (Mr. Wolf and Mr. Estevez)- Currently, unlike nearly any other such review processes in 

the U.S. government, parties to a proposed transaction under CFIUS pay no fees for the 

security review. 

• Does this make sense? 

• Could the entire process be funded through fees? 

• Would fees drive investments to some other country? 

I believe that a fee structure for CFIUS filing does make sense, although I do not believe 

the entire process could be fUnded through fees. Any cost structure would need to be 

analyzed to determine what structure could deter investment. It is important to recognize 

that CFIUS may impose certain mitigation costs on the transacting parties. However, 

when that occurs, there is still a government cost to monitoring mitigation agreements. 

2. (Mr. Wolf and Mr. Estevez)- Due to the massive increase in volume and complexity of 

foreign investment, it seems CFIUS has had to devote greater and greater amounts or 

resources to "knowing what it doesn't know"-trying to fmd deals that have not been 

through the CFIUS process, but should. Some proposals for reform suggest a notification 

to CFIUS of all transactions that might need a review, whether they formally apply for a 

review or not. 

• Would this increase, or decrease, the CFIUS workload? 

• Would it decrease the chance that companies inadvertently or intentionally went 

through without a CFIUS review? 

• Should there be some expedited approval based on a notification, or would 

creating an expedited review process inevitably lead to a dangerous transaction 

getting waved through in the interest of time? 

I believe that requiring notification of all transactions that might need a review would 

significantly increase CFIUS workload, but this is probably necessary to protect national 

security. It would decrease that chance that transactions inadvertently or intentionally 

went through without a CFIUS review. I do believe that establishing an expedited 

approval based on notification could work so long as Treasury clearly defines the 

criteria for such an expedited review. The 30 day review period is currently stressed and 

the volume would likely increase significantly. Note that CFIUS needs to be adequately 

resourced across its structure if a volume increase is legislated or regulated, or the 

process will likely fail to meet objectives of clearing appropriate transactions while 

protecting national security. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investment in the United States" 

Monetary Policy and Trade Subcommittee 

December 14,2017 

Rep. Andy Barr (R-KY) 

Questions for the Record 

3. (Mr. Wolf and Mr. Estevez)- Was there ever a time in your tenure when you thought the 

intelligence community didn't have enough time to complete its own scrub of a proposal, 

or that the intelligence community expressed concerns about being rushed? 

During my tenure, I always had the intelligence products I needed to make a CFIUS 

decision, even I asked additional questions or I identified additional data I asked the 

intelligence community to address. In such cases, the intelligence community was 

responsive. The Intelligence Community never expressed concerns that they felt rushed 

to me, although if they did feel rushed, they would likely have expressed that to Treasury. 

4. (Mr. Kirnmitt, Mr. Estevez, Mr. Wolf, and Ms. McLemon)- Would you explain the 

concept of"balance" between the need for foreign direct investment and national 

security, in the context ofCFTUS? 

The CFIUS process is designed to protect national security, and as I stated, I believe it 

did protect critical technologies and critical locations during my tenure. However, I do 

believe it is important that investors not view the CFIUS process as a roadblock to 

investing in or doing business in the United States. Foreign investment can drive 

innovation and create economic vitality both of which are important to national 

security. In addition. it is important that the CFIUS process not be viewed as a 

protectionist trade mechanism that could lead nations to place restrictions on US 

companies. While national security must be paramount, CFIUS must only prohibit or 

mitigate cases in which national security is truly at risk. 

5. (Mr. Kirnmitt, Mr. Estevez, and Mr. Wolf)- Some observers of the current CFTUS statute 

believe the committee has no jurisdiction over "de novo" or "greenfield" transactions, 

and others disagree. What is your view? 

I believe that the statute should explicitly allow the CFIUS to review "greenfield" 

transactions involving critical technology or co-location near sensitive facilities. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investment in the United States" 

Monetary Policy and Trade Subcommittee 

December 14,2017 

Rep. Andy Barr (R-KY) 

Questions for the Record 

6. (Mr. Kimmitt, Mr. Estevez, and Mr. Wolf)- Some proponents ofCFIUS reform think it 

is necessary because the definition of "covered transaction"- those transactions that 

might be subject to CFIUS review-is too limited. 

• Is that true? 

• If we were to modernize the CFIUS process, should we retain the notion of 

"covered transaction" or just assert that any transition might properly apply for or 

be subjected to a CFIUS review? 

As I testified, I believe that CF/US should be modernized to ensure that transactions that 

may threaten national security, such as joint ventures or transactions involving multiple 

purchases in a given technology sector, may be reviewed. However, I think a "carte 

blanche" approach in which covered transactions were not defined, either in law or 

regulation, would not strike the proper balance between national security and fostering 

beneficial investment. 

7. (Mr. Wolf and Mr. Estevez)- Are the types of transactions coming to CFIUS these days 

so specialized that we might need specialized personnel and perhaps special hiring 

authority to get the right sort of people with business backgrounds and security 

clearances on short notice? 

During my tenure, I believe we were able to access the expertise we needed to properly 

assess transactions, either drawing on resources across the whole of government or by 

accessing in expertise from the private sector. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investrllent in the United States 

(CFIUS)" 

To all panelist: 

December 14, 2017 

The Subcommittee on Monetary Policy and Trade hearing 

Congressman Robert Pittenger (NC-9) 

Questions for the Record 

1. Leaving the question of resources to the side, the panelists mentioned that CFIUS is 

capable of reviewing covered transactions and assessing the national security 

implications of those transactions. The challenge, however, is that the majority of crossborder transactions are not submitted to the Committee for review and the current 

definition of what constitutes a "covered transaction" may exclude currently structured 

investments that are designed to evade CFIUS review. How is the CFIUS process an 

effective tool to address the impact of cross-border investments in the United States when 

the majority of those investments are not subject to CFIUS' review or parties choose not 

to voluntarily file? 

CFIUS does review transactions that parties have not filed, although this is generally the 

exception. In my view. filing of clearly covered transactions should be mandated. 

CFIUS must also develop a process to scan for unjiled transactions that CFIUS should 

review. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investment in the United States 

(CFnJS)" 

December 14,201 

The Subcommittee on Monetary Policy and Trade hearing 

Congressman Robert Pittenger (NC-9) 

Questions for the Record 

2. It has been said that the Government maintains a list of"non-notified transactions"-

cross-border transactions that have not been submitted to CFnJS. Some suggest that the 

number of these non-notified transactions is above 9000. How is CFWS an effective tool 

when over the conrse of 5 years the Committee's annual reports indicate that they may 

have reviewed about 700 transactions, but over 9000 transactions remain 

unreviewed. Please address the impact of these non-notified transactions on the national 

security interests of the US (from a military and industry perspective). 

I believe CFIUS should mandate the filing of clearly covered transactions. While most 

unfiled transactions likely do not threaten national security, CFIUS must develop a 

process for identifying unfiled covered transactions. CFTUS must be adequately 

resourced to accomplish this task. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investment in the United States 

(CFIUS)" 

December 14, 201 

The Subcommittee on Monetary Policy and Trade hearing 

Congressman Robert Pittenger (NC-9) 

Questions for the Record 

3. Mr. Wolf, mentioned that the export laws "could and should" be used to determine 

critical technologies and that the export laws should complement and not be replaced by 

CFIUS reviews. But the Department of Commerce has, with one or two exceptions, been 

administering the Export Administration Regulations pursuant to the emergency 

authorities granted the President under the International Emergency Economic Powers 

Act (IEEPA) and the National Emergencies Act (NEA). These authorities do not provide 

substantive underpinnings for the direction or manner in which the Department 

administers export controls and leaves the management and policy development to 

Commerce without guidance trom Congress. Given this situation, how should Congress 

address the substantive limitations inherent in the fact that it continues under emergency 

powers? 

I am not an expert in Export Control laws, but would agree Congress should address the 

limitations of the use of emergency powers. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investment in the United States 

(CFIUS)" 

December 14, 201 

The Subcommittee on Monetary Policy and Trade hearing 

Congressman Robert Pittenger (NC-9) 

Questions for the Record 

4. How would the proposed legislation usurp export control authority rather than 

complement it? As written, the proposed legislation by Senator Comyn (and hls 

cosponsors) and Representative Pittenger (and his cosponsors) identifies the coordinate 

relationshlp between CFIUS and the export laws and moves to the fill gaps left by the 

inadequacies of the export regimes. Please identity the specific sections of the proposed 

legislation that creates the challenge Mr. Wolf raised during his presentation. 

I am not an expert in Export Control authorities. I note that for export controls to work, 

the parties must be trusted and willing to comply with the law (as most parties are). 

Export control authorities and CFIUS must be complimentary. CF7US should not be the 

tool to manage export controls. 
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Alan F. Estevez 

"Examining the Operations of the Committee on Foreign Investment in the United States 

(CFIUS)" 

December 14,201 

The Subcommittee on Monetary Policy and Trade hearing 

Congressman Robert Pittenger (NC-9) 

Questions for the Record 

5. Several statements by US Government leadership and studies by various think tanks, 

indicate that the US is rapidly losing its advantage across technologies and is being 

challenged even in those technologies where it maintains a lead. Prior to the first export 

reform effort under the Clinton Administration, the US utilized a "deny and delay" 

strategy for export controls to maintain a strategic advantage. That strategy shifted to a 

"run faster" concept that rested on the view that the US could develop technologies faster 

than its economic or military competitors and maintain its tactical advantages. Mr. 

Estevez noted that that philosophy remains the prevailing view when it is coupled with 

the tactical excellence of our US military. Has anyone studied the correlation between a 

change in the underlying strategy for export controls (i.e., "deny and delay" to "run 

faster") and the gains US economic and military competitors have made? For example, 

how has the transfer of technologies to the EAR, which may be more freely shared with 

China or other destinations, affected the US loss of strategic advantage? Given this loss, 

the theft of intellectual property and a narrow CFIUS review, please explain how our 

current legislative and regulatory tools protect US national security interests, as well as 

critical infrastructure issues. 

I am not aware of any study to assess the correlation between a change in the underlying 

strategy for export controls (i.e., "deny and delay" to "run faster") and the gains US 

economic and military competitors have made. There are many factors that have 

influenced the narrowing or loss of military technological advantage, to include 

globalization of technology, the amount of research and development funding spent by 

the US government, the military focus on wars against terrorist vice great power 
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competition over the last decade, and the severe impact of sequestration on the defense 

budget and defense priorities. Theft and transfer of IP certainly play a role as well. With 

that said, CFIUS is one tool the government has to protect national security. The 

government must use all the tools, to include export controls, tax and trade policy, to 

protect its critical technologies. Finally, the United States must be willing to invest in the 

research and development needed to maintain technological advantage. 
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Rep. Andy Barr (R-KY) 

4. Economic prosperity is an essential element of national security. Foreign direct 

investment contributes to economic prosperity, and hence national security, by 

creating millions of high-paying, high-quality American jobs. The balance that 

must be struck is to promote an openness to this jobs-producing investment while 

guarding against any harm to national security that might be caused by individual 

investments. 

5. Although an exceptional use of its authority, FINS A could have been applied to 

some "de novo" or "greenfield" transactions. An example would be acquisition of 

land to build a new factory adjacent to sensitive U.S. facilities. 

6. 

• In my experience, the term "covered transaction," both in statute, regulation, and 

especially practice, gave CFIUS the authority to review those investments that 

might cause national security concerns. 

• Some form of jurisdictional definition - "covered transaction" or otherwise is 

important, but it is also important to give CFIUS the authority to adapt to changing 

circumstances, such as new technologies and investment vehicles. 
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Congressman Robert Pittenger (NC-9) 

1. My experience was that CFIUS and its member agencies were vigilant about 

acquisitions both notified and not notified. The area of concern was investments 

short of acquisitions- e.g. venture or other early stage investments- that gave 

foreign investors potential access to technology even without acquiring the 

company that owned the technology. 

2. If CFIUS kept a list of "non-notified transactions," that suggests that CFIUS was 

aware of the transactions and could have taken action to bring the transactions into 

the CFIUS process. Indeed, FINS A would suggest CFIUS had an obligation to 

review any transaction of which they were aware that could have raised national 

security concerns. 

4. CFIUS, EAR, and IT AR need to act in tandem, though each has its own 

statutory authority and responsibility. The key is an interagency process involving 

all relevant actors who decide the appropriate forum, priority, and resolution for 

issues raised by cross-border investments. 

5. I defer to those with more export control experience. But many of the 

considerations raised in this question are brought to the CFIUS table for 

discussion, especially by representatives from State, Defense, and Commerce, in 

those instances where export control issues under review in other fora affect the 

acquisition-specific facts of the cases before CFIUS. 
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Nancy McLernon's Responses to Questions for the Record- Rep. Gwen Moore (WI-04) 

Nancy McLernon, president and CEO, Organization for International Investment (OF!!) 

Question One from Rep. Moore: The proposed legislation covers contributions ofiP by critical 

technology companies, but as written, the IP could relate to any kind of IP that the company 

possesses. Shouldn't we focus specifically on the contribution of IP related to critical 

technologies, and not other kinds of technology that a US critical technology company happens 

to possess? 

Response: The Committee on Foreign Investment in the United States (CFIDS) reviews 

cross-border mergers and acquisitions for possible threats to U.S. national security. 

Considering international companies from longtime U.S. allied countries provide the vast 

majority offoreign direct investment entering the United States, mainly in industries 

totally unrelated to national security, it is important that CFIDS maintains a narrow focus 

on investment activity that raises national security concerns. 

Question Two from Rep. Moore: The current CFIDS regulations already defme "critical 

technologies" with specific reference to export controlled regulations. CFIUS has said on page 

37 of its most recent annual report that export control regulations "were determined to be the 

most reliable and accurate means of identifying critical technologies." If that's the case, then 

there is no apparent reason to change that definition, and it would seem that the best way to deal 

with the transfer of critical technologies is through the export control regulations, not CFIDS. 

Don't you agree? 

Response: Yes. The Committee on Foreign Investment in the United States (CFIDS) 

cannot and should not be considered the United States' only tool to address espionage, 

trade imbalances or broader national security concerns. Export control regulations and 

other policies also belong in discussions about how to best protect U.S. national security. 
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Nancy McLernon's Response to Question(s) for the Record- Rep. Andy Barr (KY-06) 

Nancy McLernon, president and CEO, Organization for International Investment (OFII) 

Question from Rep. Barr: (Mr. Kimmitt, Mr. Estevez, and Ms. McLernon) Would you 

explain the concept of"balance" between the need for foreign direct investment and national 

security, in the context ofCFIUS? 

Response: The United States is the premier destination for foreign direct investment 

(FDI). International companies investing in the United States bring tremendous benefits, 

such as high levels of research and development (R&D), strong participation in the 

manufacturing workforce and 24 percent higher compensation than the economy-wide 

average, to name a few. International companies also broaden America's economy and 

make it more resilient. After all, when an international company invests in the United 

States, its home country now has a stake in America's success, which is good for the 

economy and U.S. foreign policy. 

However, the United States has seen its share ofFDI decline from 37 percent in 2000 to 

just 25 percent in 2017. As global competition for FDI grows, it is critical that the United 

States maintains a nonpoliticized system that provides certainty to investors and prevents 

the transfer of critical technologies to America's adversaries. 

The Committee on Foreign Investment in the United States (CFIUS) reviews crossborder mergers and acquisitions for possible threats to U.S. national security. Considering 

international companies from longtime U.S. allied countries provide the vast majority of 

FDI entering the United States, mainly in industries totally unrelated to national security, 

it is important that CFIUS maintains a narrow focus on investment activity that raises 

national security concerns. 
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Nancy McLernon's Responses to Questions for the Record- Rep. Robert Pittenger (NC-9) 

Nancy McLernon, president and CEO, Organization for International Investment (OFII) 

Question One from Rep. Pittenger: Leaving the question of resources to the side, the panelists 

mentioned that CFnJS is capable of reviewing covered transactions and assessing the national 

security implications of those transactions. The challenge, however, is that the majority of crossborder transactions are not submitted to the Committee for review and the current definition of 

what constitutes a "covered transaction" may exclude currently structured investments that are 

designed to evade CFnJS review. How is the CFIUS process an effective tool to address the 

impact of cross-border investments in the United States when the majority of those investments 

are not subject to CFnJS' review or parties choose not to voluntarily file? 

Response: Considering international companies from longtime U.S. allied countries 

provide the vast majority of foreign direct investment (FDI) entering the United States, 

predominately in industries totally unrelated to national security, it is important that 

CFnJS maintains a narrow focus on investment activity that raises potential national 

security concerns. 

The bicameral, bipartisan Foreign Investment Risk Review Modernization Act (FIRRMA) 

creates four new types of covered transactions under CFnJS's jurisdiction. FIRRMA also 

more closely aligns CFnJS reviews with transactions that could lead to the potential 

transfer of critical technologies. 

Question Two from Rep. Pittenger: It has been said that the Goverurnent maintains a list of 

"non-notified transactions"- cross-border transactions that have not been submitted to CFnJS. 

Some suggest that the number of these non-notified transactions is above 9000. How is CFIUS 

an effective tool when over the course of 5 years the Committee's annual reports indicate that 

they may have reviewed about 700 transactions, but over 9000 transactions remain uureviewed. 

Please address the impact of these non-notified transactions on the national security interests of 

the US (from a military and industry perspective). 

Response: More than 80 percent ofFDI activity in the United States takes place through 

mergers and acquisitions (M&A). Considering international companies from longtime 

U.S. allied countries provide the vast majority ofFDI entering the United States, 

predominately in industries totally unrelated to national security, it is important that 

CFnJS maintains a narrow focus on investment activity that raises potential national 

security concerns. 

The United States' open investment climate helps to diversify America's economy and 

open new markets. International companies in the United States produce 23 percent of 

U.S. exports, which totals nearly one billion dollars of exports every single day. 

Moreover, these companies source hundreds of billions of dollars in goods and services 

from local U.S. suppliers, supplementing their already tremendous contributions to U.S. 

industry and the U.S. economy. 

Question Three from Rep. Pittenger: Mr. Wolf, mentioned that the export laws "could and 

should" be used to determine critical technologies and that export laws should complement and 

not be replaced by CFnJS reviews. But the Department of Commerce has, with one or two 

exceptions, been administering the Export Administration Regulations pursuant to the 
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emergency authorities granted the President under the International Emergency Economic 

Powers Act (IEEP A) and the National Emergencies Act (NEA). These authorities do not provide 

substantive underpinnings for the direction or manner in which the Department administers 

export controls and leaves the management and policy development to Commerce without 

guidance from Congress. Given this situation, how should Congress address the substantive 

limitations inherent in the fact that it continues under emergency powers? 

Response: This issue is outside of the scope of OFII' s focus. 

Question Four from Rep. Pittenger: How would the proposed legislation usurp export control 

authority rather than complement it? As written, the proposed legislation by Senator Comyn (and 

his cosponsors) and Representative Pittenger (and his cosponsors) identifies the coordinate 

relationship between CFIUS and the export laws and moves to fill the gaps left by the 

inadequacies of the export regimes. Please identify the specific sections of the proposed 

legislation that creates the challenge Mr. Wolf raised during his presentation. 

Response: Mr. Wolfs testimony stated that "the CFIUS and export control systems 

complement each other." This approach allows for CFIUS's focus to remain on reviewing 

FDI transactions for possible national security concerns. 

Question Five from Rep. Pittenger: Several statements by US Government leadership and 

studies by various think tanks, indicate that the US is rapidly losing its advantage across 

technologies and is being challenged even in those technologies where it maintains a lead. Prior 

to the first export reform effort under the Clinton Administration, the US utilized a "deny and 

delay" strategy for export controls to maintain a strategic advantage. That strategy shifted to a 

"run faster" concept that rested on the view that the US could develop technologies taster than its 

economic or military competitors and maintain its tactical advantages. Mr. Estevez noted that the 

philosophy remains the prevailing view when it is coupled with the tactical excellence of our US 

military. Has anyone studied the correlation between a change in the underlying strategy for 

export controls (i.e., "deny and delay" to "run faster") and the gains US economic and military 

competitors have made? For example, how has the transfer of technologies to the EAR, which 

may be more freely shared with China or other destinations, affected the US loss of strategic 

advantage? Given this loss, the theft of intellectual property and a narrow CFIUS review, please 

explain how our current legislative and regulatory tools protect US national security interest, as 

well as critical infrastructure issues. 

Response: The United States is the premier destination for FDI. International companies 

investing in the United States bring tremendous benefits, such as high levels of research 

and development (R&D), strong participation in the manufacturing workforce and 24 

percent higher compensation than the economy-wide average, to name a few. 

International companies also broaden America's economy and make it more resilient. 

After all, when an international company invests in the United States, its home country 

now has a stake in America's success, which is good for the domestic economy and U.S. 

foreign policy. 

2 
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The Committee on Foreign Investment in the United States (CFIUS) cannot- and should 

not- be construed as the United States' only tool to address espionage, trade imbalances 

or broader national security concerns. CFIUS's effectiveness lies in its narrow mandate to 

review cross-border mergers and acquisitions for possible national security concerns. The 

resulting bipartisan, bicameral legislation struck the proper balance between protecting 

U.S. national security and establishing a stable, rules-based environment that encourages 

FDL 

OFII is not aware of any research comparing the effectiveness in approaches on CFIUS. 

3 
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Responses of Kevin Wolf [in bold) to 

Questions for Record 

Of 

Representative Gwen Moore 

Subcommittee on Monetary Policy and Trade 

Hearing 

Evaluating CF/US: Challenges Posed by a Changing Global Economy 

S~ction 3(a)(5)(B) of the proposed legislation would treat as a covered transaction any 

transaction involving the contribution by a US critical technology company of intellectual 

property and associated support. The legislation defines a US critical technology company as 

any company that produces, trades in, designs, tests, manufactures, services or develops critical 

technologies. The defmition in the proposed legislation of"critical technologies" is very broad 

and leaves room for further expansion through regulations. 

Can each of the witness please answer the following questions: 

The proposed legislation covers contributions ofiP by critical technology companies, but 

as written, the IP could relate to any kind ofiP that the company possesses. Shouldn't 

we focus specifically on the contribution of IP related to critical technologies, and not 

other kinds of technology that a US critical technology company happens to possess? 

Response: Yes, absolutely. This question goes right to the heart of what appears to 

be an inadvertent, but nonetheless significant, over-control in the bill's inbound and 

outbound investment provisions- paragraphs (S)(B)(iii) and (S)(B)(v). The purpose 

of the bill with respect to such provisions is to give CFIUS jurisdiction over 

transactions that would or might result in the contribution of critical technology to 

foreign persons as a result of an inbound or an outbound investment. The 

jurisdictional hook of the two paragraphs is, however, not the critical technology 

that might be contributed or released, but rather the company itself- even if the 

investment at issue would have nothing to do with critical technology. 

That is, an inbound investment is caught by paragraph (S)(B)(iii) if it is in a "critical 

technology company." An outbound investment is caught by paragraph (S)(B)(v) if 

it is by a "critical technology company." (There are some other requirements and 

exceptions, but this is the essential jurisdictional hook in the two provisions.) The 

definition of "critical technology company" is quite broad and includes any 

company that merely "trades in" or "services"- not just develops --an item on one 

of the export control lists (see (8)(b)(i)-(v)) or in the bill's unidentified list of 

emerging critical technologies in paragraph (8)(B)(vi). Thus, for example, a 

company that merely trades in one of the commercial items on the Commerce 

Control List (such as telecommunications server with commercial encryption), but 

does not have any ability to develop such technology, is a "critical technology 
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company." Any investment into that company (other than a narrowly defined 

passive investment) would be a covered transaction even if the investment had 

nothing to do with critical technology or the company had no ability to develop 

critical technology. 

Even for companies that develop critical technology, the jurisdictional scope of 

paragraphs (S)(B)(iii) and (S)(B)(v) is out of focus because not every investment into 

or by such companies pertains to, involves, or could result in the contribution of 

critical technology. An extreme example of this to make the broader point would be 

a foreign investment in an aerospace company's souvenir coffee cup division. 

Aerospace companies are critical technology companies, according to the bill's 

definition of the term, because they develop technologies on the Commerce Control 

List (among other things). A foreign investment in that company's coffee cup 

division- which would not result in the contribution of critical technology- would 

be a covered transaction under (S)(B)(iii) and an outbound joint venture by the 

coffee cup division with a foreign entity would be a covered transaction under 

(S)(B)(v). Of course, such investments present no national security threats, but this 

is an example of how broad the scope provisions are and why the absence of a 

jurisdictional hook to the critical technology of concern should be addressed to 

better accomplish the bill's objectives without creating significant inadvertent 

controls and uncertainties. 

The scope of the provisions is even broader when considering that a company could 

be a "critical technology company" even it never trades in, services, or develops an 

item on an export control list but engages in such acts with an unknown, 

unidentified list of emerging technologies in paragraph (8)(B)(vi). There is nothing 

wrong with the def"mition of emerging technologies of concern in paragraph 

(8)(B)(vi). Anything meeting that definition that is not controlled somehow for 

release to foreign persons should be. I don't think anyone objects to this point, even 

if they have different ways of articulating the concern. The problem though is that 

U.S. businesses and foreign investors would have no way of knowing what the 

government considers to be emerging technology covered by this paragraph because 

the bill doesn't require the government to identify what types of technologies meet 

the definition. (The bill does require that regulations be published, but doesn't 

require a process for the government to identify what the technologies are that meet 

this definition.) 

Thus, U.S. businesses not involved in technology on an export control or other list 

would not know if they are a "critical technology company" and foreign investors 

would not know whether they are investing in a "critical technology company." If 

this were to become Jaw- without a requirement to identify first the emerging 

technologies of concern -- it could create significant uncertainty in the investment 

marketplace. U.S. and foreign companies could never really know whether CFIUS 

would have the authority to unwind or alter a transaction that would involve a 

company unwittingly trading in, servicing, or developing a technology the 

government considered to be within the scope of paragraph (8)(B)(vi). Companies 
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would be discouraged from investing as a result and foreign companies might 

choose to invest in non-U.S. companies where such uncertainties didn't exist. Again, 

if the technology is critical and meets the definition in (8)(B)(vi), it should be 

controlled. No one I know of is objecting to that point. Rather, the issue is the 

uncertainty about what would meet this definition, particularly for companies that 

do not work in the national security arena and would not have an intuitive sense for 

what would be of concern to the government's national security experts. 

There are two relatively easy fixes for these issues that would address the national 

security concerns motivating the bill (which I'm not disagreeing with) but without 

the inadvertent over-control and uncertainty. One approach would be to first 

require the government to identify the types of emerging technologies of concern 

within the scope of paragraph (8)(B)(vi) and then tie the jurisdictional hooks of 

paragraphs (5)(B)(iii) and (5)(B)(v) to any critical technologies identified in the 

export control lists or the newly identified technologies within the scope of 

paragraph (8)(B)(vi). Another approach would be to require the existing technolog) 

transfer control system -i.e., the export control system- to identify on the relevant 

control list (e.g., the Commerce Control List) the technologies that meet the 

definition in (8)(B)(vi) and then to regulate their transfer to end users, end uses, and 

destinations of concern under the related export control regulations (e.g., the Expor1 

Administration Regulations). 

The current CFIUS regulations already define "critical technologies" with specific 

reference to export controlled regulations. CFIUS has said on page 3 7 of its most recent 

annual report that export control regulations "were determined to be the most reliable and 

accurate means of identifying critical technologies." lfthat's the case, then there is no 

apparent reason to change that definition, and it would seem that the best way to deal 

with the transfer of critical technologies is tluough the export control regulations, not 

CFIUS. Don't you agree? 

Response: I agree. See my comments above. 

Some have argued that export controls cannot address "know-how" or 

"foundational information." That is not correct. The existing definition of 

"development" in the Export Administration Regulations includes within its scope 

all information prior to the production stage necessary to develop an item. 15 

C.F.R. 772.1. All that is required is for BIS, working with its interagency 

colleagues, to identify those early-stage technologies that are of concern and to add 

them to the controls in the Export Administration Regulations. See 15 C.F.R. Part 

774. This is the hard part. Beginning on page 7 of my testimony before HFAC, I 

describe the existing authorities in the EAR to do so. See: 

http://docs.house.gov/meetings/F A/F A00/20180314/1 07997/HHRG-115-FAOOWstate-WolfK-20180314.pdf 

It is also a specific requirement in section 109 of the Export Control Reform Act 

(H.R. 5040) introduced by Congressmen Royce and Engel. As described at the end 
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of my HFAC testimony, I believe that this approach would address the concern far 

more directly and far more quickly- and regardless of whether there were a 

covered transaction involved. Please do not take this comment as one suggesting 

that I am hostile to the objectives of FIRRMA. I'm not. Indeed, I think it is in our 

national security interests that the topics in the bill be addressed. On this one point, 

however, I believe, based on my experience in the government and in the private 

sector, that there is already an existing system, the export control system, that can 

address concerns about technology transfers more directly and with fewer collateral 

consequences. I make no comment here about other concerns FIRRMA is designed 

to address. 
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Kevin Wolf's Responses [in bold] to: 

"Examining the Operations ofthe Committee on Foreign Investment in the United States" 

Monetary Policy and Trade Subcommittee 

December 14,2017 

Rep. Andy Barr (R-KY) 

Questions for the Record 

1. (Mr. Wolf and Mr. Estevez)- Currently, nnlike nearly any other such review processes in 

the U.S. government, parties to a proposed transaction under CFIUS pay no fees for the 

security review. 

• Does this make sense? 

• Could the entire process be funded through fees? 

• Would fees drive investments to some other country? 

Response: Yes, to the first question- so long as the Departments that are members of 

CFIUS properly fund their CFIUS staff to do what needs to be done so that the process. 

is efficient, fair, and responsive to its national security mission. The basis for my "yes" 

answer is my experience with respect to the prohibition in the Export Administration 

Act of 1979 against the charging of fees for the filing of export license applications. I 

believe Congress made a good policy decision with this prohibition because it eliminates 

the possibility that an agency responsible for a regnlatory requirement is even 

subconsciously affected in its regulatory decisions by a need to generate funds for its 

operations. The tasks required to address particular national security issues (such as 

those within the responsibility of CFIUS or the export control system) should be 

identified. Congress and the responsible agencies should then appropriate and spend 

the funds to administer the system necessary to perform those tasks- no more and no 

less. (A corollary belief of mine is that penalties paid for violating the requirements of, 

for example, the export control rules should go into the general treasury rather than 

back to the specific law enforcement agency. This helps keep the focus on the substance 

ofthe violations rather than how much income they would bring into the enforcing 

agency.) 

No, to the second question. As you know, there is not one appropriation for CFIUS. 

Each member department decides for itself out of existing funds for the department 

how to staff its work for the committee. Also, different CFIUS filings require calling 

upon different parts of the government with expertise that are not normally part of 

CFIUS. The intelligence community also must reach in to different parts ofits system 

not normally part of CFIUS reviews to collect information that become relevant for 

different cases. I'm not a budgeting expert, but trying to connect fees to this far-flung 
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and massive staff efforts in a dozen or so different agencies seems very difficult. I think 

it is best for each department to have a line-item budget allocation (that doesn't detract 

from the department's other core missions) for the staff it needs to perform its volume 

of work required by the pace and difficulty of CFIUS filings. Also, there is a significant 

sequencing issue in the bill that means that fees cannot pay for all that CFIUS would 

need to do. That is, the bill's key requirements do not become effective until after there 

are regulations and staff in place to handle the new workload. (This is a clever timing 

idea, by the way, that prevents unfunded mandates.) However, to hire the large 

number of new staff (hundreds?) required to implement the requirements of the new 

law, there will need to be funds in place a year or more before the effective date to hire, 

get cleared, and train the new staff to handle the new workload. This is no small task. 

Thus, a significant source of funds other than fees will be necessary to get the new 

system started. 

Maybe, on the third question. Part of what motivated the bill is a concern about small 

start-ups and the technology they may develop that is critical. The bill does not want to 

do anything to discourage U.S. innovation. One percent of a transaction in a lowmargin transaction with a small company could be psychologically significant to 

decisions about whether to invest. I answer "maybe" because I do not have any data or 

quality anecdotes upon which to base a conclusion. More than the one percent {or 

$300,000) amount, however, the issue of the fixed costs, expenses, and delays associated 

with the need to submit a CFIUS filing are significant. It takes a lot of effort to prepare 

even a short CFIUS filing because of the need to be accurate (so as not to inadvertently 

make a false or misleading statement to the government) and to collect enough details 

about a transaction to make the filing complete. There are often follow-on questions 

from the committee that take time and resources to respond to. 

I have seen first hand that the delay involved in getting clearances can result in 

decisions to avoid transactions. I'm not saying that there should not be CFIUS or 

export controls, only stating a common point that if they are not administered 

efficiently and the least regulatory burdensome way possible companies will often 

choose to avoid the United States for investments in other allied countries with fewer 

regulatory burdens. There is not data to prove these points because they are events that 

never happened. I would encourage the members to ask industry for answers to this 

question to get more reliable, robust answers. 

2. (Mr. Wolf and Mr. Estevez)- Due to the massive increase in volume and complexity of 

foreign investment, it seems CFIUS has had to devote greater and greater amounts or 

resources to "knowing what it doesn't know"-trying to find deals that have not been 

through the CFIUS process, but should. Some proposals for reform suggest a notification 
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to CFIUS of all transactions that might need a review, whether they tormally apply tor a 

review or not. 

• Would this increase, or decrease, the CFIUS workload? 

• Would it decrease the chance that companies inadvertently or intentionally went 

through without a CFIUS review? 

• Should there be some expedited approval based on a notification, or would 

creating an expedited review process inevitably lead to a dangerous transaction 

getting waved through in the interest of time? 

Response to first bullet: Yes, this would, by definition, increase the workload. By 

bow much is a function of what CFIUS would require be filed. All such discussions 

always come down to identifying the types of transactions that warrant some form 

of notification to the government- whether a filing or some form of notice. And to 

know what to file, the government must first decide what the technology transfers 

are that present or potentially present some form of a threat that must be regulated. 

The DIUx study, the 301 report, and other studies (properly) point out issues with a 

variety of industries, such as Artificial Intelligence, robotics, semiconductors, 

driverless vehicle technology, and aerospace. To require every transaction or 

uncontrolled technology transfer in such whole industries to be noticed to the 

government would be unmanageable -for industry and for the government. 

Indeed, the sector-wide filing requirements would be significantly harmful to the 

U.S. industrial base for a wide variety of reasons. (I do not believe that the bill's 

proponents are advocating whole-sector notice/filing requirements, but I mention to 

help respond to the question.) 

This is where Section 109 of Export Control Reform Act (H.R. 5040) becomes 

relevant. It would require the Administration to follow an interagency process to 

identify the emerging technologies of concern and control them. Following this 

process could result in a more tailored list of technologies that warrant either a full 

filing or notice requirement- either as part of the regular export control system or 

a tailored scoping of the outbound and inbound investment provisions of FIRRMA. 

With respect to the second bullet, a company could only inadvertently miss a CFIUS 

process if CFIUS had jurisdiction over the activity. But, assuming a tailored notice 

requirement could be created, then its success will be a function of how well known 

it is and if there are sufficient penalties for failing to file (which will motivate more 

compliance). CFIUS is uot well known among the new sectors that would be 

subject to any new filing requirements, particularly start-ups that generally do not 

have robust regulatory compliance programs. Thus, a substantial educational and 

outreach effort would be required to get the word out. 

There are three solutions that come to mind (although there would others with more 

thought). 1. Provide resources for CFIUS to hire staff to travel the country to 

educate those who would be affected. 2. Provide resources to BIS for its already 

existing exporter services staff to get the word out. (The work would dovetail with 

its export control education responsibilities.) 3. Think of a clever way to connect the 
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obligation to the patent application process. Although many ofthe newly affect 

companies may not have robust regulatory compliance systems, they will want to 

apply for and protect their patents. The U.S. government already (to some extent) 

reviews patent filings for national security issues. Combining the new CFIUS notice 

obligation with existing national security patent review process might be efficient. 

With respect to the third question, again, the key is how broad or narrow the scope 

of the filing requirement is. There is always a risk that artificially expedited 

procedures will result in review failures. The key is to have a process to (i) identify 

the national security threats for which technologies, (ii) tailor the requirements to 

that threat, (iii) educate the public on the new requirements after a notice and 

comment process to work out errors, (iv) assess how many staff will be required to 

review and process the new filings in a reasonable time, such as thirty day. 

3. (Mr. Wolf and Mr. Estevez)- Was there ever a time in your tenure when you thought the 

intelligence community didn't have enough time to complete its own scrub of a proposal, 

or that the intelligence community expressed concerns about being rushed? 

Response: No. If further investigation was required, we sent the cases into 

investigation. If that was not enough to resolve issue, we often informally asked 

parties to withdraw and re-file the submission so that we could continue the work. 

4. (Mr. Kimmitt, Mr. Estevez, Mr. Wolf, and Ms. McLernon)- Would you explain the 

concept of "balance" between the need for foreign direct investment and national 

security, in the context ofCFIUS? 

Response: National security concerns are, of course, paramount and should be the 

basis for any final CFIUS actions. The United States never wants to be in a fair 

fight. The appropriate, aggressively enforced, clearly written, and well-funded 

foreign direct investment, export, and related controls are a critical part of 

maintaining that advantage. I have never subscribed to the view that CFIUS 

requirements or export controls should "balance" national security concerns with 

economic concerns. National security concerns are not to be traded off for 

something else in a particular transaction or in trade deals. Rather, they should be 

properly calibrated, tailored controls to avoid collateral economic costs, 

unnecessary regulatory burdens, and misallocation of federal resources. If controls 

are too broad- e.g., applicable to entire sectors of an economy rather than 

particular transactions or technologies- the U.S. industrial base is harmed because 

investment in benign aspects ofthe sector gravitates toward similar investments in 

allied countries without such controls. If the scope is too narrow, then, of course, 
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the national security is harmed as well because the objectives of CFIUS- resolving 

national security risks associated with foreign investment are not addressed. As 

importantly, their scope must be certain so that companies (foreign and domestic) 

can easily know when they apply. Otherwise, the uncertainty creates incentives to 

avoid transactions with U.S. companies, which inevitably hurts the US industrial 

base. 

I realize this answer is quite general. If you'd like a longer commentary, let me 

know. If it is a difficult question to address briefly. 

5. (Mr. Kimmitt, Mr. Estevez, and Mr. Wolf)- Some observers of the current CFIUS statute 

believe the committee has no jurisdiction over "de novo" or "greenfield" transactions, 

and others disagree. What is your view? 

Response: It is not an opinion- Under current law and regulations, CFIUS does 

not have jurisdiction over foreign investments that are not "covered," i.e., do not or 

would not result in control, as defined, of a U.S. business. Thus, if there is no U.S. 

business that would be subject to control, then CFIUS doesn't have jurisdiction. 

(Counsel can provide a more detailed answer with citations, but this is the essential 

point.) 

6. (Mr. Kimmitt, Mr. Estevez, and Mr. Wolf)- Some proponents ofCFIUS reform think it 

is necessary because the definition of"covered transaction"- those transactions that 

might be subject to CFIUS review-is too limited. 

• Is that true? 

• If we were to modernize the CFIUS process, should we retain the notion of 

"covered transaction" or just assert that any transition might properly apply for or 

be subjected to a CFIUS review? 

Response: Yes. I think the proposed expansion to cover certain types of real estate 

transactions is a good idea. Expanding the scope to cover additional types of 

inbound and outbound transactions warrants additional discussion regarding the 

goals to be achieved. If the purpose of the expansion is to address technology 

transfer concerns, then the export control system is a better place to address such 

concerns. It literally exists to identify and regulate the transfers of technology -

regardless of the underlying transaction - that warrant control for national security 

or foreign policy reasons. I applaud FIRRMA's provisions that would make such 

hiring quicker and easier for the CFIUS agencies. 
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Retaining the notion of "covered transaction" is clearly the better approach. It 

allows (with properly drafted regulations) for certainty as to which types of 

transactions would and would not be subject to the jurisdiction of CFIUS. Without 

it, massive uncertainty would result about the circumstances under which CFIUS 

could exert its authority to block or alter a transaction. Such an open-ended 

authority would significantly harm the US industrial base because it would 

discourage investment with U.S. companies. When given an option between the 

possibility of a transaction being unwound in a non-reviewable proceeding that can 

be imposed without knowledge of when jurisdiction would be applied versus largely 

unrelated transactions in allied countries, foreign investors will generally prefer the 

latter. Uncertainty discourages investment. 

Moreover, such an open-ended filing requirement is effectively the beginning of an 

U.S. industrial policy. History has shown that state-controlled alteration of 

economic decisions eventually harm the economy more than it helps. All previous 

administrations in recent history have eschewed such tactics. The experience of 

other countries that try it to a significant scale prove that it distorts economic 

incentives and reduces profit. Such systems are also prone to political capture 

where the system is manipulated for individual, market-distorting gain by those in 

charge. (I'm not an economist, so I will defer to actual economists for a better, more 

robust description of why industrial policies are, in the main, bad for the_economy.) 

7. (Mr. Wolf and Mr. Estevez)- Are the types of transactions coming to CFIUS these days 

so specialized that we might need specialized personnel and perhaps special hiring 

authority to get the right sort of people with business backgrounds and security 

clearances on short notice? 

Response: In some cases, yes. There is significant expertise within the government 

in most of the technology topics that come before CFIUS. Also, CFIUS has the 

authority and the tradition of bringing in subject matter experts from agencies not 

normally part of the CFIUS process. However, to address the emerging technology 

issues at the heart of what is motivating FIRRMA, I'd suggest Commerce, Defense, 

Treasury, and DHS, in particular, look to hiring for their CFIUS review staffs 

additional non-traditional subject matter experts in the specific emerging 

technologies under discussion. The government is good at what it knows, but the 

topic at issue is about what it does not know- and from a purely commercial sector 

that trAditional national security experts in the government may not be as well 

versed in. I'm not suggesting in any way that current staff are unqualified, only 
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that they are understaffed- and when hiring new staff, technical experts in the 

areas under discussion should be the focus. 
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Kevin Wolfs responses [in bold) to: 

Thursday, December 14,2017 

"Examining the Operations of the Committee on Foreign Investment in the United States 

(CFIUS)" 

The Subcommittee on Monetary Policy and Trade hearing 

Congressman Robert Pittenger (NC-9) 

To all panelist: 

1. Leaving the question of resources to the side, the panelists mentioned that CFIUS is 

capable of reviewing covered transactions and assessing the national security 

implications of those transactions. The challenge, however, is that the majority of crossborder transactions are not submitted to the Committee for review and the current 

definition of what constitutes a "covered transaction" may exclude currently structured 

investments that are designed to evade CFIUS review. How is the CFIUS process an 

effective tool to address the impact of cross-border investments in the United States when 

the majority of those investments are not subject to CFIUS' review or parties choose not 

to voluntarily file? 

Response: CFIUS has jurisdiction over foreign investments that would or could result in 

control of a U.S. business- whether directly or indirectly, formally or informally. 

Transactions that do not or could not result in control, as broadly defmed, of a U.S. 

business are not covered. That doesn't mean that parties to non-covered transactions were 

necessarily evading a CFIUS obligation. There are many economic reasons why 

transactions are structured that are completely unrelated to the concerns CFIUS is 

designed to address. Thus, the real question is what national security concerns related to 

foreign investment are not being addressed by other areas of law that could be addressed 

by expanding the scope of covered transactions to those that would not involve control by a 

foreign person over a U.S. business. FIRRMA sets out several suggested fixes for several 

gaps, such as those pertaining to real estate transactions near sensitive military facilities. 

The topic I was asked to speak about pertains to whether, as a result of transactions that do 

not result in control over a U.S. business, there is an unaddressed risk of emerging critical 

technologies of concern being transferred to foreign persons, primarily those in China. I 

am not denying that the Chinese government has announced a plan to acquire from the 

United States a list of essentially commercial technologies that are not subject to current 

export controls for strategic and military gain. In my role as Assistant Secretary, I 
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required the creation of new or revised controls to address such concerns and instructed 

that many licenses be denied based on concerns that otherwise commercial technology 

might be diverted to a military end use or end user in China and other countries. I continue 

to be concerned about such issues and am grateful that the FIRRMA discussion has kickstarted the debate about how to address such evolving concerns, and how to address them 

quickly. My essential point in response is that any emerging technologies that meet the 

standards in FIRRMA section 3(a)(8)(B)(vi) should be identified and controlledregardless of the underlying transaction. In testimony I later gave to the House Foreign 

Affairs Committee, I described these authorities and options in some detail. I'd ask that it 

be reviewed as part of my answer to this question. See: 

http://docs.house.gov/meetings/FA/FA00/20180314/107997/HHRG-115-FAOO-WstateWolfK-20180314.pdf 

2. It has been said that the Government maintains a list of"non-notified transactions" 

cross-border transactions that have not been submitted to CFIUS. Some suggest that the 

number of these non-notified transactions is above 9000. How is CFIUS an effective tool 

when over the course of 5 years the Committee's annual reports indicate that they may 

have reviewed about 700 transactions, but over 9000 transactions remain 

unreviewed. Please address the impact of these non-notified transactions on the national 

security interests of the US (from a military and industry perspective). 

Response: From my time in government, I am aware that there were non-notified 

transactions that CFIUS determined should be reviewed and ordered the parties to file, 

which they did. I am unaware, however, of a list of non-filed covered transactions that is 

that large. If it exists, the committee should absolutely review it to determine whether the 

already-completed transactions should be unwound or altered to address national security 

concerns. If it does not have the staff to do so, then the departments, working with 

Congress, should get the appropriations and funding for more staff to review the cases. 

(The system could barely handle 240 cases last year, so reviewing 9000, or a fraction 

thereof, more would require a substantially larger CFIUS staff at multiple agencies.) 

The broader point to the question is that the process is voluntary under current law and, 

except for foreign-government controlled transactions, would be under FIRRMA as well. 

Companies make, and would still need to make, their own determinations about whether a 

transaction is covered and then about whether it potentially raises any national security 

implications that might result in CFIUS's later deciding to unwind or alter it. If there were 

that many transactions covered by the current law that were not filed with CFIUS, then 

there is not a clear weakness in the current CFIUS defmition of covered transaction, only 

in (a) the ability of companies to realize that there might be a national security concern for 

the U.S. government with respect to the transaction and (b) the absence of fear that the 

U.S. government would demand a filing for a non-notified and completed transaction. 

With respect to the first point, it was not uncommon that national security concerns 

expressed by the committee to parties came as an apparent surprise to them. Commercial 
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companies not normally involved in national security applications for their products often 

do not know how their technology could be put to other uses of concern. This is why it is 

critical for the U.S. government to identify, even if generally, the types of transactions that 

would raise national security concerns and then to educate the public about them. The 

FIRRMA debate is educating the public on such issues and Treasury does some outreach. 

My suggestion though would be for the government to increase the pace and quantity of 

outreach in to the issues CFIUS is concerned about, particularly in parts of the country 

where significant amounts of emerging technologies are being developed. With respect the 

second point, I and most other witnesses testified that the agencies need more resources to 

research transactions that were not notified. This would lead to more non-notified filings 

orders, which would then lead to more companies fearing the economic harm that could 

result if they did not file a covered transaction that was later determined to have 

unresolved national security issues. 

3. Mr. Wolf, mentioned that the export laws "could and should" be used to determine 

critical technologies and that the export laws should complement and not be replaced by 

CFIUS reviews. But the Department of Commerce has, with one or two exceptions, been 

administering the Export Administration Regulations pursuant to the emergency 

authorities granted the President under the International Emergency Economic Powers 

Act (IEEP A) and the National Emergencies Act (NEA). These authorities do not provide 

substantive underpinnings for the direction or manner in which the Department 

administers export controls and leaves the management and policy development to 

Commerce without guidance from Congress. Given this situation, how should Congress 

address the substantive limitations inherent in the fact that it continues under emergency 

powers? 

Response: I agree with the premise of the question, which is why I support passage (after 

some technical corrections of inadvertent drafting errors) of the bipartisan Export Control 

Reform Act of 2018 (H.R. 5040) introduced by Congressmen Royce and Engel. Section 102 

of the bill sets out a modern statement of policy for the export control system. It would 

express the will of Congress regarding what the export control system should achieve. I 

suspect most members of Congress, Democratic and Republican, would agree with it. 

In addition, section 109 of the bill would require the Administration to conduct a "regular, 

ongoing interagency process to identify emerging critical technologies that are not 

identified in any list of items controlled for export under United States law or regulations, 

but that nonetheless could be essential for maintaining or increasing the technological 

advantage of the United States over countries that pose a significant threat to the national 

security ofthe United States with respect to national defense, intelligence, or other areas of 

national security, or gaining an advantage over such countries in areas where such an 

advantage may not currently exist." The section goes on to require such technologies be 
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controlled, unilaterally at first and then multilaterally to keep the playing field for US 

companies as level as possible with its allies. Although Commerce has the authority to do 

such work now under JEEP A, such a congressional instruction would motivate the 

Administration to do more than is done now (or previou_sly) about identifying and 

controlling such emerging technologies, which are literally the types of uncontrolled 

technologies at the heart of the FIRRMA concerns. 

4. How would the proposed legislation usurp export control authority rather than 

complement it? As written, the proposed legislation by Senator Comyn (and his 

cosponsors) and Representative Pittenger (and his cosponsors) identifies the coordinate 

relationship between CFIUS and the export laws and moves to the fill gaps left by the 

inadequacies of the export regimes. Please identify the specific sections of the proposed 

legislation that creates the challenge Mr. Wolf raised during his presentation. 

Response: "Usurp" is perhaps too strong of a word and not something I would have said. 

My main point on this topic is that there exists already an entire system to identify and 

regu_late the transfer of technology of concern for national security or foreign policy 

reasons- the export control system. It has several advantages over the some of the 

investment provisions in FIRRMA. It creates certainty for both US and foreign parties in 

that it identifies, even if in broad terms, the types oftechnologies (either in the earliest 

developmental stages or later production stages) that are and are not controlled. 

(Uncertainty discourages investment and is thus contrary to the goal of maintaining a 

healthy industrial base.) The export control system also creates fewer collateral 

consequences because it is infinitely tailorable to address transfers to specific destinations, 

end uses, and end users. 

Most importantly, export controls regulate technology of concern regardless of the nature of 

the underlying transaction. That is, if technology is sensitive, the export control system 

requires authorization for its release regardless of whether it would be transferred as part 

of a joint venture, inbound investment, a telephone call, an email, or a regular response to a 

purchase order. The FIRRMA approach would only control the technology of concern if 

there were a covered transaction, however defined. If technology is of such concern that it 

would warrant the potential unwinding of an investment, then it is of such concern to be 

regulated generally, with or without an investment. My testimony to HFAC goes into more 

detail on the scope and flexibility of the export control system. See: 

http://docs.house.gov/meetings/FA/FA00/20180314/107997/HHRG-115-FAOO-WstateWolfK-20180314.pdf 

As also stated in my HFAC testimony, export controls are not the solution to all problems. 

If the national security issue associated with an investment does not pertain to technology 

transfer concerns or imposing prohibitions on specific end users or end uses outside the 

United States, then the export control system is not the solution.