Today, I submitted written testimony to the U.S. House Committee on Appropriations, Subcommittee on Commerce, Justice, Science, and Related Agencies. Click here to download a pdf of the testimony.
Chair Shaheen, Ranking Member Moran, and Members of the Subcommittee:
Thank you for the opportunity to testify. My name is Samuel Hammond, and I am Senior Economist at the Foundation for American Innovation, a nonprofit organization focused on promoting innovation, improving governance, and strengthening national security. I am writing to respectfully request that the Subcommittee provide full funding to the Department of Commerce’s Bureau of Industry and Security (BIS), which requested $223.4 million for FY2025 (an increase of $43.11 million), to fulfill its mission of “ensuring an effective export control and treaty compliance system and promoting continued U.S. strategic technology leadership.”
The authorities vested in the BIS are mission-critical to the United States’ technological competition with the People’s Republic of China. Most notably, export controls were introduced on advanced AI chips and semiconductor equipment in 2022, denying Beijing access to technologies necessary to power innovations in artificial intelligence and supercomputing. While the controls have already taken a toll, there are serious gaps in BIS’s capacity to enforce semiconductor export controls at scale. Between chip smuggling and other evasion tactics, the BIS is in urgent need of additional resources to keep up with China’s game of cat and mouse.
According to a report from the House Foreign Affairs Committee, as of last year, the BIS had only one in-house Mandarin speaker (recently upgraded to two), and at one point “only employed one member of staff who could maintain and operate the Federal Register system.” Given this severe lack of capacity, it is no wonder that a recent analysis of procurement records showed China’s military and state-run research institutes have acquired significant numbers of AI chips crucial for developing modern AI systems in spite of the controls.
The BIS’s export controls on AI chips are benchmarked to the performance density of state-of-the-art AI chips circa 2022-2023. As chip performance continues to improve, the number of chips produced above the current performance threshold will balloon. This means that the controls will bind increasingly over time, but also become substantially more challenging for the BIS to monitor and enforce. Indeed, production of Nvidia’s H100 chip alone is forecasted to triple this year. As the volume of chips under control continues to grow, any existing leaks in BIS enforcement could soon turn into a roaring torrent of illegal exports.
Funding constraints hurt all the more given the unusual range of skills BIS analysts need to do their job effectively. Crafting sensible controls on AI chips demands staff with deep technical knowledge of the semiconductor supply chain, while enforcing the controls requires analysts with expertise in China’s economy and evasion tactics. Yet what the BIS needs more than anything is better technology. As it stands, BIS agents enforce export controls with what amounts to Google searches and giant spreadsheets. By fulfilling this appropriations request, BIS will have the resources it needs to modernize its data management systems, paving the way for its enforcement capacity to be supercharged with the aid of machine learning and proprietary data sources to process license requests and spot supply chain anomalies automatically.
Given the importance of BIS’s mission in the United States’s national security and economic strategies, fully funding the BIS request is prudent, particularly given Congress and the Biden administration’s recent focus on improving American competitiveness. The CHIPS and Science Act of 2022 provided the Commerce Department with more than $50 billion for the CHIPS for America Fund to promote the American semiconductor sector. Fully funding the administration’s budget request for BIS, which reflects less than one percent of the new fund’s expenditures, is reasonable given the Bureau’s mandate to protect American technological leadership. The Subcommittee should also include report language requiring Commerce and BIS to report to Congress about its current capacity to enforce export control laws and to monitor and deter violations, including policy options for closing any identified gaps.
The Subcommittee could reallocate funding from other activities within the Commerce Department that are less critical to national security to offset the proposed funding increase for BIS. Moreover, the Committee and Congress could conduct additional oversight to require the Commerce Department to implement currently open watchdog recommendations from the Government Accountability Office and the Inspector General, which should result in cost savings that could be used to increase funding for BIS.
In addition, the Subcommittee should require the Department of Commerce and BIS to report to Congress on its current capability to deter export control violations, smuggling, or third-party transactions of advanced chips and other technologies and present potential options for closing any identified gaps. The administration’s national security strategy of denying the People’s Republic of China technology critical to advancing artificial intelligence and supercomputing will not be achieved if U.S. export laws are evaded or third parties smuggle or sell certain chips to China. Research and historical experience show that the outcome of policies to increase or deny market access to foreign firms is highly sensitive to the implementation procedures used. This will be especially true of semiconductors, as China has already begun efforts to skirt export controls through sophisticated third-party and subsidiary arrangements. A Commerce Department assessment should provide recommendations for improving its ability to enforce export control laws under conditions of adversarial evasion tactics. This should include evaluating the extent of China’s access to controlled chips via cloud services (the “remote-access” loophole), and an assessment of the potential for on-chip mechanisms to bolster end-user controls.
Export licenses were a key tool for containing Soviet access to U.S. military technology during the Cold War, but ebbed in relevance following the end of the Cold War. The pendulum has now begun to swing back in light of China’s state-backed effort to dominate critical emerging technology categories, as demonstrated by the BIS’s annual requests for export licenses doubling to 40,000 over the last ten years. Unfortunately, funding for the agency has failed to keep pace with this new reality, to the detriment of U.S. export industries and national security alike.
In conclusion, the Bureau of Industry and Security has a critical mission for U.S. national and economic security. Fully funding BIS to fulfill its mission should be a priority within the Commerce Department’s budget. Moreover, additional reporting by Commerce and GAO about BIS’s current capacity to fulfill its mission and recommendations for potential policy changes to deter export control violations would help Congress and the administration determine if additional resources and authorities are needed.
Yours sincerely,
Samuel Hammond
Senior Economist
Foundation for American Innovation
