Defense Federal Acquisition Regulation Supplement: Restriction on Certain Metal Products (DFARS Case 2021-D015)

<RULE> DEPARTMENT OF DEFENSE <SUBAGY>Defense Acquisition Regulations System</SUBAGY> <CFR>48 CFR Parts 225 and 252</CFR> <DEPDOC>[Docket DARS-2023-0018]</DEPDOC> <RIN>RIN 0750-AL33</RIN> <SUBJECT>Defense Federal Acquisition Regulation Supplement: Restriction on Certain Metal Products (DFARS Case 2021-D015)</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Defense Acquisition Regulations System, Department of Defense (DoD). <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act of Fiscal Year 2021 that provides restrictions on the acquisition of certain covered materials from The Democratic People's Republic of North Korea, The People's Republic of China, The Russian Federation, and The Islamic Republic of Iran. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective May 30, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Kimberly Bass, telephone 703-717-3446. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> DoD published a proposed rule in the <E T="04">Federal Register</E> at 88 FR 25609 on April 27, 2023, to implement section 844 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021 (Pub. L. 116-283). Section 844 amends 10 U.S.C. 2533c (redesignated 10 U.S.C. 4872) and removes from the restriction “material melted” and replaces it with “material mined, refined, separated, melted”. In addition, the reference to “tungsten” is removed and replaced with “covered material” in the exception for commercially available-off-the-shelf (COTS) items to the restriction of 50 percent or more by weight. The final rule also implements section 854 of the NDAA for FY 2024 (Pub. L. 118-31) that amends the effective date in section 844(b) of the NDAA for FY 2021. Section 854 extends the effective date of the restriction from 5 years to 6 years. Nine respondents submitted public comments in response to the proposed rule. <HD SOURCE="HD1">II. Discussion and Analysis</HD> DoD reviewed the public comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments is provided, as follows: <HD SOURCE="HD2">A. Summary of Significant Changes From the Proposed Rule</HD> Revisions were made at DFARS 225.7018-2 to implement the new effective date of the restriction in accordance with section 854 of the NDAA for FY 2024. Consequently, the dates of the current restrictions were revised to provide an effective date through December 31, 2026, and to reflect that the new restrictions will be effective on January 1, 2027. Conforming revisions were also made in the DFARS clause at 252.225-7052, Restriction on the Acquisition of Certain Magnets, Tantalum, and Tungsten. <HD SOURCE="HD2">B. Analysis of Public Comments</HD> <HD SOURCE="HD3">1. Support for the Rule</HD> <E T="03">Comment:</E> Most respondents strongly supported the proposed rule. A few respondents stated that implementation of the restriction will help to strengthen domestic supply chains and help to establish secure domestic sourcing requirements. A respondent conveyed support for the rule and provided the restriction will contribute to the redevelopment of domestic rare earth production capacity. <E T="03">Response:</E> DoD acknowledges the respondents' support for the rule. <HD SOURCE="HD3">2. Strengthen the Defense Industrial Base</HD> <E T="03">Comment:</E> A respondent requested the opportunity to meet and strategize with DoD representatives of the Defense Acquisition Regulations System. <E T="03">Response:</E> While undergoing the Title 48 CFR rulemaking process, information regarding a rule is pre-decisional, deliberative Government information that cannot be shared with the public. In the context of public notice and comment in the course of rulemaking, it would be inappropriate to meet with individual members of the public to strategize about a pending rule. <HD SOURCE="HD3">3. Availability of Domestic Sources or Suppliers</HD> <HD SOURCE="HD3">a. Disruption in the U.S. Supply Chain</HD> <E T="03">Comment:</E> A few respondents shared concerns regarding the market dominance of Chinese rare earth metals, the impacts of the restriction, and the potential disruption in the U.S. domestic supply chains. <E T="03">Response:</E> Implementation of the statutory sourcing requirements in accordance with 10 U.S.C. 2533c (now 10 U.S.C. 4872), as amended by section 844 of the NDAA for FY 2021, is a necessary step to support the development of secure suppliers and transition defense critical supply chains to secure sources. DoD has supported the effective implementation of the statutory sourcing requirements through existing and planned investments in compliant suppliers. If compliant suppliers are not available for specified applications, the statute authorizes DoD to issue a nonavailability determination until a compliant supplier becomes available. <HD SOURCE="HD3">b. Samarium-Cobalt (Sm-Co) Magnets</HD> <E T="03">Comment:</E> A respondent specified that it is the only U.S.-based, vertically integrated domestic supplier of samarium cobalt magnets and discussed the impacts of their current rare earth metals supplier and its subsequent foreign ownership status. The respondent further states that they have spoken to potential domestic rare earth metal suppliers and their transition to becoming a domestic supplier is in its infancy at best. <E T="03">Response:</E> Implementation of the statutory sourcing requirements, in coordination with existing and planned DoD investments in the rare earth magnet supply chain, will support the development of compliant suppliers for rare earth concentrates, oxides, metals, and magnets. If compliant suppliers are not available for specified applications, the statute authorizes DoD to issue a nonavailability determination until a compliant supplier becomes available. DoD notes that the statute permits sourcing from domestic suppliers as well as suppliers located in other countries that source outside of the four covered countries: North Korea, Russia, Iran, or the People's Republic of China. <HD SOURCE="HD3">4. National Security Risks</HD> <E T="03">Comment:</E> Many respondents relayed their overall concerns with the Chinese rare earth metals market dominance and the associated national security risks. <E T="03">Response:</E> The principal benefit of this rule is that it continues the transition of the defense industrial base toward sourcing strategic and critical materials from suppliers other than the covered countries of North Korea, Russia, Iran, and the People's Republic of China. This requirement, in combination with existing and planned DoD investments, demonstrates DoD's commitment to support secure suppliers and to reduce the national security risks associated with over-reliance on, and the dominance of, the Chinese market. <HD SOURCE="HD3">5. Effective Date of Restriction</HD> <E T="03">Comment:</E> A few respondents expressed concern that domestic sources would not be available by the effective dates established in the rule. A respondent specifically recommended DoD advocate that Congress amend the statute to replace the specific effective dates with, instead, an effective date 180 days after the Secretary of Defense certifies to Congress that sufficient domestic sources are available to meet DoD's needs. <E T="03">Response:</E> Section 844(b) of the NDAA for FY 2021, as amended by section 854 of the NDAA for FY 2024, expressly states the effective date of the restrictions. As such, DoD cannot implement any other effective dates. DoD notes that section 854 extends the effective date of the restriction by one additional year to January 1, 2027. The restriction at DFARS 225.7018-2 reflects the statutory effective date as a clear demand signal and timetable to DoD's industry partners. DoD encourages industry to diligently seek and develop compliant domestic sources by the stated effective dates. <HD SOURCE="HD3">6. Recycled Material Exception</HD> <E T="03">Comment:</E> A respondent inquired about the applicability of the restriction to an end item containing a covered material that is a neodymium-iron-boron magnet manufactured from recycled material if the milling of the recycled material and sintering of the final magnet takes place in the United States. The respondent recommends DoD consider the same recycled material exception to be applied to the other magnets subject to the statutory restriction. <E T="03">Response:</E> The statutory requirements for exceptions in 10 U.S.C. 4872(c)(3)(C) state that the restriction under subsection (a) does not apply to the purchase by DoD of an end item containing a covered material that is a neodymium-iron-boron magnet manufactured from recycled material if the milling of the recycled material and sintering of the final magnet takes place in the United States. The section 844 amendments to 10 U.S.C. 2533c (now 10 U.S.C. 4872) did not add exceptions for the remaining covered materials, defined in the statute. <HD SOURCE="HD3">7. Statutory Implementation</HD> <E T="03">Comment:</E> A few respondents expressed support for the rule but highlighted specific areas for further consideration by DoD. A respondent welcomed the revision of the exception to the restriction to include COTS items that are 50 percent or more by weight to all covered items, including but no longer limited to only tungsten. However, the respondent opined that implementing this change would be problematic because of a lack of consistent methodology to determine whether an item qualifies for the exception. Another respondent express ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 39k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━