Introduced by Nazak Nikakhtar, Performing the Non-Exclusive Duties of the Under Secretary for Industry and Security.
Thank you, Nazak, for that kind introduction. The United States is fortunate to have people of your caliber and experience engaged in some of the most critical issues of our time. Thank you, also, to the entire staff at BIS, for your hard work, and your steadfast commitment to our national security.
BIS has been extremely busy tackling some of the most vexing and conspicuous national security issues facing the country in decades. Economic security is essential to national security, and the intersection between the dual uses of technology is especially where BIS operates.
Its task is not easy, since the boundaries between civilian and military technologies become ever more narrow as technologies are increasingly omnipresent. But it is our job to protect the long-term interests of our country by maintaining and strengthening our advantage in leading-edge technologies.
We have no choice.
The future prosperity of the United States depends on our strategic advantage in advanced technologies. We cannot allow our most precious resource — our intellectual property —to be stolen, copied, or traded away for short-term gain. And we can no longer accept the decline of U.S. industries due to state-supported overcapacity, and the strategic — often clandestine — foreign purchases and investments in our most important technology enterprises.
I am grateful for the efforts of the many businesses in this room, helping us to defend our national interests with the least damage necessary to your short-term revenues. Your continued cooperation proves that you are patriots at heart. The Bureau of Industry and Security staff works across the entire spectrum of national security and technology agencies to identify and control the most sensitive technologies — including emerging and foundational ones — under new mandates of the ECRA, the Export Control Reform Act of 2018.
This important law was part of last year’s National Defense Authorization Act, and it clearly describes threats to U.S. security arising from: The proliferation of weapons of mass destruction; Potential acts of terror; The rise of destabilizing foreign militaries; The vulnerabilities of our infrastructure; And an increasing number of cyberattacks on companies, government agencies, and even citizens.
ECRA also clearly states that the United States must remain globally competitive in science, technology, engineering and — specifically — “manufacturing sectors.” It directs agencies like BIS to continually evaluate the impact of export controls on U.S. scientific and industrial leadership in order to “avoid negatively affecting such leadership.” If new export controls seem necessary, the Department seeks public input, and strives for multilateral agreements so important controls are universally applied.
We are establishing an Emerging Technology Technical Advisory Committee to help review those technologies. Members of this Committee will be announced soon, and they will get to work immediately to help modernize our controls on important technologies. We are also aggressively investigating export control violations. Since the start of 2017, BIS has initiated 2,284 export control investigations, a 21 percent increase in the number of cases opened from the previous two-and-a-half years.
Of the closed cases for export violations during that same period, we had 89 civil adjudications and 70 criminal prosecutions involving a range of countries including China, Russia, Pakistan, North Korea, and Iran. In addition, we have conducted more than 2,000 end-use checks on technology sales in more than 65 countries since 2017. On average, 25 percent were either unfavorable — violations of Export Administration Regulations — or unverified, meaning we could not confirm compliance. Unfavorable determinations were turned into enforcement actions, including Unverified List designations.
In the current increasingly risky national security environment, the private sector must act responsibly, and protect technologies with national security ramifications. It is wrong to trade secret or sensitive IP and source codes for access to a foreign market, however lucrative that market might be. It is also important to stay vigilant and ensure that once exported, sensitive technologies are not diverted to countries of concern that will misuse these technologies to advance their military capabilities.
We are alert to China’s civil−military fusion strategy, and understand China’s tenacious pursuit of American technologies it needs to modernize its military. This cannot be tolerated, and we are updating our export control policies to account for this very real threat. BIS’s Entity List denies sensitive technologies to companies endangering our national security and foreign policy interests.
Since 2017, we have added 182 companies to the Entity List, including 49 Chinese companies, 49 Russian ones, and 20 Pakistanis. On May 16 of this year, BIS added Huawei Technologies — the largest telecommunications equipment producer in the world — and 68 affiliates, to Commerce’s Entity List. Four days later, on May 20th, BIS issued a 90-day General License allowing customers time to arrange new suppliers, and for Commerce to determine the appropriate long-term measures for American and foreign telecom providers currently relying on Huawei for critical services.
To implement the President’s G-20 Summit directive two weeks ago, Commerce will issue licenses where there is no threat to U.S. national security. Within those confines we will try to make sure that we don’t just transfer revenue from the U.S. to foreign firms. Huawei itself remains on the Entity List, and the announcement does not change the scope of items requiring licenses from the Commerce Department, nor the presumption of denial.
ZTE is another example of BIS’s strong enforcement activities. Because of the Department’s action, ZTE is the most monitored corporation in BIS history.
Due to Criminal and Civil settlements, ZTE has a full-time Commerce monitor and a full-time court monitor policing its affairs, in addition to record-breaking fines. Beyond export controls, BIS works closely with Treasury and other agencies to address national security risks arising from foreign investments in U.S. technology companies. This is pursuant to the Foreign Investment Risk Review Modernization Act, or FIRRMA. FIRMMA updates the rules governing the Committee on Foreign Investment in the United States.
We are working closely with other agencies to implement Pilot Program reviews of non-controlling interests in critical technology companies, and will fully implement the law by February. Since the start of 2017, Commerce has reviewed 662 CFIUS filings, including new declarations submitted under the Pilot Program. CFIUS investigations will rise as we address previously undisclosed investments in U.S. technology companies that may pose national security risks. Further, we look at the entire spectrum of foreign investments for trends indicating when an important nascent technology sector has been targeted. We will address vulnerabilities using our CFIUS authority or export control laws.
Another new initiative underway at BIS responds to the May 15, 2019, Executive Order by President Trump on “Securing the Information and Communications Technology and Services Supply Chain.” The Department will issue by mid-October interim regulations for making determinations under the Executive Order to ensure the viability of our IT and telecom providers. We will protect the security of the U.S. data infrastructure. The interim final rule will request input from the public, stakeholders in the private sector, government agencies, and academia. Most importantly, we must quickly identify the most significant vulnerabilities in our telecommunications supply chain and act swiftly to mitigate them.
Finally, we reinvigorated our steel and aluminum industries, whose viability is essential to our nation’s national security. The positive effects of the Section 232 tariffs can be measured on the factory floor. The average monthly steel capacity utilization rate in 2019 is 81.8 percent, up from the 77.4 percent for the same period of 2018, and 74 percent for the full year in 2017.
Since 2018, at least 30 companies have announced plans to modernize, expand, reopen, or build new steel production facilities in the United States, at an estimated investment of $10 billion. In our essential aluminum industry, the U.S. primary utilization rate increased in 2018 to an annual average of about 49 percent, up from 40 percent in 2017.
We have tracked more than 25 investments in aluminum production estimated at more than $3.3 billion. We have also made significant strides in the exclusions process. BIS has received nearly 109,000 exclusion requests to date. Of those submitted properly, approximately two-thirds have been decided, and the others will be done soon. Seventy-one percent of the exclusion posted have been granted, and 29 percent denied due to the availability of U.S. product.
We have also created a new online 232 Exclusions Portal for companies to more easily submit exclusion requests and review the status of submittals. This new Portal reduces the time it takes to render a decision. We have been making sure the United States remains an economic and military superpower. That is our number one goal; it is why we are working so hard.
I look forward to hearing your feedback about how we can improve further our existing activities and initiate new ones.
I am especially interested in innovative ideas to make sure we continue to strike a proper balance between security needs and American commercial interests as this becomes more and more complex.
Thank you for attending this important event for BIS and the United States of America.