This is the last in a four-part series of articles on the current scrutiny being given to rare earths by the US Congress and US Department of Defense, in the context of national security considerations. The third part can be accessed here. The full white paper can be downloaded as a PDF file from here.
Strategic Materials and the Law – Continued
There is yet a further insurance policy for those looking to have rare earth materials formally recognized as strategic materials. The Senate version of the NDAA for FY2010, S 1390, passed in late July 2009 and also contained language concerning rare earth materials . The accompanying Senate Report to S 1390 recommended the inclusion of “a provision that would require the Defense Science Board to report to Congress on the usage of rare earth materials in the supply chain of the Department of Defense. The report would address the extent to which weapon systems may become dependent on rare earth materials supplied by sources that could be interrupted” . The recommendation made it into the Act itself, with the Defense Science Board being asked in Section 837 to address:
- the current and projected domestic and world-wide availability of rare earth materials for use by the Department of Defense in its weapon systems;
- the extent to which weapon systems acquired by the Department of Defense are currently dependent on, or are projected to become dependent on, rare earth materials supplied by sources that could be interrupted;
- the risk to national security, if any, of dependence on such sources for rare earth materials;
- any steps that the Department of Defense has taken or is planning to take to address any such risk to national security;
- such recommendations for further action to address the matters covered by the report as the Defense Science Board considers appropriate.
The term ‘‘rare earth material’’ in this Section “includes rare earth ores, semi-finished rare earth products, and components containing rare earth materials”. We can see that the aims of this report were similar to those of HR 2647.
The Defense Science Board is a longstanding US entity that includes DoD personnel in addition to other individuals drawn from the larger scientific and technical community . As such, it might be considered more objective, with regard to assessing DoD needs and responsibilities, than the DoD-only SMPB.
The next stage in the evolution of the NDAA for FY2010 will be the conference between the House and Senate, in order to create a unified document for the President to sign into law. It is unlikely that requirements for both the General Accountability Office and the Defense Science Board to investigate rare earths will remain in the final version, but it is clear that at least one of them will have the mandate to do this work.
It is also clear that beyond the present legislation, there will continue to be friction between Congress and the DoD on the issue of defense spending and regulation. In the latter half of August 2009, President Obama threatened to veto “unnecessary defense spending”, citing the presidential helicopter program, backup engines for the F-35 fighter project and a proposal to purchase 12 more F-22 fighters as examples of military spending of more benefit to the contractors involved, than the US soldiers they purported to help. The President said that lobbyists were “pushing weapons that even our military says it doesn’t want” .
While issues pertaining to specialty metals are usually found further down the DoD supply chain, there is a risk that the existing procurement restrictions embodied in the specialty metals provisions, as they relate for example, to rare earth-containing high performance magnets, might lead to significantly higher costs to the DoD (and ultimately to the US taxpayer) for components that use such materials.
It is useful to look at other assessments relating to strategic materials, to see if there are pointers regarding rare earth materials and the potential consequences for placing future restrictions on their procurement, via the option of designating them as specialty metals.
The previously mentioned Institute of Defense Analyses report commissioned by the SMPB and published in October 2008 was one such study. It contains a fleeting, albeit flawed reference to rare earths, through the inclusion of data from Molycorp Minerals, inaccurately described as a producer of “rare earth magnets”. However, the study concluded that “the U.S. strategic metals industry is investing in new processing plants and equipment”, and that “[s]pecial [sic] metals investment is primarily driven by demand for commercial aircraft applications” and not military applications .
The 2008 report on the National Defense Stockpile by the National Research Council (NRC) noted that “[o]ne simple method for mitigating the risks of dependence on vulnerable foreign supplies is to simply bar goods manufactured or sourced outside national boundaries from defense procurement ” . The report went on to note that “[r]estrictive measures of this sort have implications for procurement costs that may not be attractive. By nature, they are not very flexible tools for managing supply chain risks, although discretion for waiver almost always exists if officials are willing to invest significant political capital in exercising this discretion. Import restrictions, if exercised, may also create undesired obstacles to U.S. exports when copied, or retaliated against, abroad. They can, however, reduce dependence on foreign supplies at reasonable cost, but only if they are imposed some time before a crisis” .
Another report from the NRC, this time on the criticality of certain minerals to the US economy, was also published in 2008. In this document, the authors surmised that “while foreign competition for minerals is one aspect in a range of factors affecting the supply of minerals to the U.S. economy, a high degree of import dependence for certain minerals is not in itself a reason for concern. However, import dependence can expose a range of U.S. industries to political, economic, and other risks that vary according to the particular situation. Informed planning to maintain and enhance domestic economic growth requires knowledge of potential restrictions in the supply of non-fuel minerals, as well as the strategies to mitigate the effects of those restrictions” . The authors did note the criticality of rare earth elements, but not in the context of procurement restriction.
Finally, in its 2009 report to Congress on national industrial capabilities, the DoD noted that it “desires that the industrial base on which it draws be reliable, cost-effective, and sufficient to meet strategic objectives. However, an infinitely robust industrial base is not the ultimate objective of the [DoD]. Rather, reliable, cost-effective, and sufficient industrial capabilities are a means to the [DoD]’s ultimate objective: the development, production, and support of defense materiel necessary to provide for the nation’s defense” .
Clearly the next 6-9 months will be critical as one of the entities tasked by Congress to investigate rare earth materials and their place in the DoD supply chain, does its work. Equally critical will be what happens as the battles lines are further drawn between the DoD and Congress on this matter, and between the various special interests advocating for a loosening of the specialty metal provisions, and those who wish to see the existing rules tightened, with additional materials added to the list.
On the basis of Congressionally-mandated reports by the DoD and independent third parties, there appears to be little evidence that either the national security or economic needs of the US would benefit from a future designation of rare earth materials as strategic materials via their addition to the specialty metals list – particularly in a sole source situation, albeit a domestic one. Certainly it is important for the US to secure access to rare earths for both defense and non-defense applications. It would make sense to do this through a more cooperative concerted effort, perhaps sponsored by Congress AND the DoD (if they can be persuaded to work more closely together) along with private enterprise, to accelerate the pace required to establish multiple North American sources of rare earth materials .
In addition to meeting national security objectives, such a plan could provide a competitive landscape for all those involved in the rare earth supply chain, by avoiding the replacement of one single source situation (i.e. procurement from China) with another. Such a plan might also go some way to alleviate fears of the potential future nationalization of such resources, in the interests of national security – fears which perhaps inhibit further private investment into the rare earth supply chain, in the near term.
Perhaps there already exists a viable approach. The Defense Production Act Title III Program is a DoD-wide initiative to “create assured, affordable, and commercially viable production capabilities and capacities for items essential for national defense” . According to the Web site set up by the DoD’s Office of Technology Transition for this program, “Title III promotes production capabilities that would otherwise be inadequate to support the material requirements of defense programs in a timely and affordable manner. Title III focuses on materials and components that could be used in a broad spectrum of defense systems”. The site goes on to say that “Title III projects create numerous economic and technological benefits for domestic industries and consumers” .
Examples of current projects being undertaken through this program include:
- work to “ensure a continuing supply of primary (high purity) beryllium metal to the United States and its allies for defense and critical civilian applications”;
- work to “establish, strengthen, and expand a domestic source for advanced thermal batteries”;
- work to establish “a domestic full-scale production capability for thin silicon-on-insulator (SOI) wafers”.
These are just a few of many examples. This type of approach, might be worth considering for a domestic rare earth materials development program.
9. Scott Arnold et al, ‘Assessment of Industry Investment in U.S. Domestic Production of Strategic Materials’, Institute for Defense Analyses, Oct 2008.
26. S 2647, ‘National Defense Authorization Act for Fiscal Year 2010’, Sec. 837, 24 Jul 2009.
27. US Senate Armed Services Committee, ‘Report on S 1390: National Defense Authorization Act for Fiscal Year 2010’, Senate Report 111-35, 2 Jul 2009.
28. Defense Science Board, ‘History of the Defense Science Board’, Office of the Under Secretary of Defense for Acquisition, Technology & Logistics Web site, last accessed 21 Aug 2009.
29. Julianna Goldman, ‘Obama Promises to Veto Unnecessary Defense Spending’, Bloomberg Web site, 17 Aug 2009, last accessed 2 Sep 2009.
30. National Materials Advisory Board of the National Research Council, ‘Managing Materials for a Twenty-first Century Military’, The National Academies Press, Washington, D.C., 2008.
31. Committee on Earth Resources of the National Research Council, ‘Minerals, Critical Minerals and the U.S. Economy’, The National Academies Press, Washington, D.C., 2008.
32. US Department of Defense, ‘Annual Industrial Capabilities Report to Congress’, Office of the Under Secretary of Defense for Acquisition, Technology & Logistics – Industrial Policy, Mar 2009.
33. Jack Lifton, ‘Is China Planning to Restrict or Eliminate Export of ‘Heavy’ Rare Earth Metals?’, Seeking Alpha Web site, 19 Aug 2009, last accessed 5 Sep 2009.
34. US Department of Defense, ‘Defense Production Act Title III Homepage’, Office of the Under Secretary of Defense for Acquisition, Technology & Logistics – Technology Transition, www.acq.osd.mil/ott/dpatitle3/, last accessed 16 Sep 2009.