Industrial Security leadership from Treasury, Commerce, and the DoD testified before the Senate Banking Committee on Thursday, calling for resources and legislative support as demands on their remit grow
The witnesses testified in support of Defense Production Act reauthorization, continued vigilance on outbound and inbound foreign investment, and enhanced resources for trade security at BIS.
Of critical import to several of the witnesses was the renewal of the Defense Production Act (DPA), scheduled to expire September 30, 2025.
Dr. Laura Taylor-Kale Assistant Secretary of Defense for Industrial Base Policy discussed the importance of effective management and execution of DPA authorities and appropriations.
“We also, you know, use Title I really at no cost to the taxpayer. A lapse would impact our prioritizations not just for us but also with our allies and partners,” she stated.
“We have over 20 security of supply arrangements with key partners and allies across the globe. Those security of supply arrangements have been used with Israel, and they've been used for Ukraine
We're using the Defense Production Act Title III to expand and bring more non-traditional companies into the defense ecosystem. Without Title III awards and the reauthorization of DPA Title III in general, we wouldn't be able to do that very important work.”
In FY2024, the DoD is on track to execute over $1 billion in DPA Title III awards and continues to remain postured to execute the authorities provided under the DPA to support the Warfighter. DPA Title III authorizes the use of direct purchases (grants), purchase commitments, guarantees of purchases or leases of advanced manufacturing equipment, and loans or loan guarantees.
Grant T. Harris Assistant Secretary of Commerce for Industry and Analysis discussed progress on implementing outbound investment rules.
“We're trying to take a very deliberate, narrow, and tailored approach to address a national security risk,” he told the committee.
“This includes certain outbound investments supporting the development of sensitive technologies in countries of concern, such as U.S. venture capital or private equity supporting sensitive semiconductor technology or AI-related applications in a Chinese startup.”
“We will soon have the Outbound Investment Security Program to prevent U.S. private capital from supporting advances in countries of concern in critical sectors that undermine U.S. national security.
The Outbound Investment Security Program, pursuant to Executive Order (E.O.) 14105, directed Treasury to issue regulations on outbound U.S. investment into certain sensitive technologies and products in identified sectors within countries of concern.
According to Harris, The Outbound Investment Security Program—like the CFIUS review process,—will be administered by the Treasury Department, but Commerce plays a significant role in each, leveraging their understanding of industries and supply chains.
Since Congress enacted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the Industry and Analysis unit expanded its CFIUS team and established an Office of Investment Security.
“We are pioneering new data-driven tools and creating playbooks to assess supply chain vulnerabilities in specific sectors, including for emerging technologies,” said Harris.
“Our Supply Chain Exposure Tool provides a common operating picture of risks that enables focused, evidence-based conversations and actions with international partners. We are also building a tool that utilizes a comprehensive set of indicators to assess current or prospective supply chain risks across the U.S. economy, with an emphasis on risks to national security and economic security most relevant to the U.S. Government.
Chairman Sherrod Brown (D-OH), noting that in 2018, Congress gave CFIUS the authority to require mandatory filings of foreign investments in critical technologies, asking “Would CFIUS be able to better protect the U.S. from dangerous foreign investments if it had the ability to require these mandatory filings for transactions related to infrastructure?”
“I think the challenge is figuring out how to mandatorily require what we need to see while weeding out broader noise,” said Assistant Treasury Secretary Paul M. Rosen, who heads up the inter-agency CFIUS process.
“Over the last two years, Treasury has transformed the way the Committee approaches compliance with mitigation agreements and enforcement thereof,” Rosen continued.
“We have expanded and devoted significant resources to the monitoring and enforcement mission, nearly doubling the size of Treasury’s team over the last several years.
“In April, we published a proposed rule to sharpen our investigation and enforcement tools. Among other things, the proposed rule substantially increases the maximum civil monetary penalty for certain violations and expands the types of information CFIUS can require parties to submit when engaging with them on non-notified transactions. Once finalized, the updated regulations will help us more effectively deter violations, promote compliance, and swiftly act to address risks to national security.
Thea D. Rozman Kendler Assistant Secretary of Commerce for Export Administration briefed the panel on the licensing process and recent changes.
In calendar year 2023, license applications for the PRC had an average processing time (APT) of approximately 92 days.
This APT is significantly longer than the CY 2023 APT for non-PRC cases of approximately 31 days.
Compared to CY 2021 APT for PRC cases of approximately 76 days, we see a 21% increase in just two years. This data shows that BIS, with its interagency colleagues, is taking the time to ensure that PRC licenses are carefully reviewed.
Sen Van Hollen asked “specifically when and if we would apply the the foreign direct product rule” to Japanese and Dutch semiconductor equipment makers, noting the rule “is obviously an escalatory measure, but one that may help get people's attention to secure their cooperation.”
“We have increasingly used that as a tool,” Kendler replied, noting “It is a a heavy measure.”
Kendler noted a significant increase in requests for assistance under the DPAS regulation.In 2023, the Commerce Department undertook 59 official actions in response to DPAS assistance requests, the highest number of official actions undertaken by the Department in the last 34 years.
If the DPA’s Title I authority were to lapse, the Commerce Department would no longer be able to support procurement on behalf of an entity other than the U.S. Armed Forces, Kendler noted.
“If I had one ask, it would be for funds for IT modernization. We need roughly $100 million to take antiquated systems and turn them into useful, productive data and analytic support.”
“Taking inflation into account, our budget has essentially been flat for quite some time. Basically, over the last decade, it has barely kept up with inflation.” Funds appropriated by Congress for the bureau have remained flat at $191 million over fiscal years 2023 and 2024.
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