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TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED MATTERS

Subtitle D--Industrial Base Matters

P. L. 116-

House Conference Report   116-617

(1) In general.--The Secretary of Defense, acting through the Undersecretary of Defense for Acquisition and Sustainment and other appropriate officials, shall review the items under subsection (c) to determine and develop appropriate actions, consistent with the policies, programs, and activities required under chapter 148 of title 10, United States Code, chapter 83 of title 41, United States Code, and the Defense Production Act of 1950 (50 U.S.C. 4501 et seq.), including--

(A) restricting procurement, with appropriate waivers for cost, emergency requirements, and non-availability of suppliers, including restricting procurement to--

(i) suppliers in the United States;

(ii) suppliers in the national technology and industrial base (as defined in section 2500 of title 10, United States Code);

(iii) suppliers in other allied nations; or

(iv) other suppliers;

(B) increasing investment through use of research and development or procurement activities and acquisition authorities to--

(i) expand production capacity;

(ii) diversify sources of supply; or

(iii) promote alternative approaches for addressing military requirements;

(C) prohibiting procurement from selected sources or nations;

(D) taking a combination of actions described under subparagraphs (A),(B), and (C); or

(E) taking no action.

(2) Considerations.--The analyses conducted pursuant to paragraph (1) shall consider national security, economic, and treaty implications, as well as impacts on current and potential suppliers of goods and services.

(b) Reporting on Analyses, Recommendations, and Actions.--

(1) Interim brief.--Not later than January 15, 2022, the Secretary of Defense shall submit to the congressional defense committees--

(A) a summary of the findings of the analyses undertaken for each item pursuant to subsection (a);

(B) relevant recommendations resulting from the analyses; and

(C) descriptions of specific activities undertaken as a result of the analyses, including schedule and resources allocated for any planned actions.

(2) Reporting.--The Secretary of Defense shall include the analyses conducted under subsection (a), and any relevant recommendations and descriptions of activities resulting from such analyses, as appropriate, in each of the following submitted during the 2022 calendar year:

(A) The annual report to Congress required under section 2504 of title 10, United States Code.

(B) The annual report on unfunded priorities of the national technology and industrial base required under section 2504a of such title.

(C) Department of Defense technology and industrial base policy guidance prescribed under section 2506 of such title.

(D) Activities to modernize acquisition processes to ensure integrity of industrial base pursuant to section 2509 of such title.

(E) Defense memoranda of understanding and related agreements considered in accordance with section 2531 of such title.

(F) Industrial base or acquisition policy changes.

(G) Legislative proposals for changes to relevant statutes which the Department shall consider, develop, and submit to the Committees on Armed Services of the Senate and House of
Representatives not less frequently than once per fiscal year.

(H) Quarterly briefings on the national technology and industrial base required under section 2504 of such title, as amended by section 842 of this Act.

(I) Other actions as the Secretary of Defense determines appropriate.

(c) List of High Priority Goods and Services for Analyses, Recommendations, and Actions.--The items described in this subsection are the following:

(1) Goods and services covered under existing restrictions, where a waiver, exception, or domestic non-availability determination has been applied.

(2) Printed circuit boards and other electronics components, consistent with the requirements of other provisions of this Act.

(3) Pharmaceuticals, including active pharmaceutical ingredients.

(4) Medical devices.

(5) Therapeutics.

(6) Vaccines.

(7) Diagnostic medical equipment and consumables, including reagents and swabs.

(8) Ventilators and related products.

(9) Personal protective equipment.

(10) Strategic and critical materials, including rare earth materials.

(11) Natural or synthetic graphite.

(12) Coal-based rayon carbon fibers.

(13) Aluminum and aluminum alloys.

The Senate amendment contained a provision (sec. 806) that would require the Secretary of Defense to conduct a series of assessments of certain materials and technology sectors, such as microelectronics and pharmaceutical ingredients, to determine what action to take with respect to sourcing or investment to increase domestic industrial capacity and explore ways to entice critical technology industries to move production to the United States for the purposes of national security.

The House bill contained no similar provision.

The House recedes with an amendment that would amend the list of high priority goods and services in subsection (c); add to and further specify activities required under subsection (b); and provide additional implementation direction.

The conferees remain concerned about overreliance on non-domestic sources of supply for certain technologies and products that are critical to the national defense and have included many of those cases in the text of this provision, and also provided specific directions in other provisions of this Act. The conferees are requiring the Secretary of Defense to conduct a series of assessments of certain materials and technology sectors to determine what action to take with respect to sourcing or investment to increase domestic industrial capacity and explore ways to entice critical technology industries to move production to the United States for the purposes of national security. The conferees note that, in 2018, the Department of Defense published a study titled ``Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States.'' The study identified several risks to the industrial base, including foreign dependency, and in some cases dependency on sole foreign suppliers for critical technologies used by the United States military. Additionally, the U.S.-China Economic and Security Review Commission's 2019 annual report identified a ``growing reliance'' on products critical to the manufacturing of active pharmaceutical ingredients.

The conferees believe that significant supply chain vulnerability has further been demonstrated by the recent COVID-19 pandemic. This represents a critical vulnerability, especially when supply chains come under the direct control or influence of the Government of the People's Republic of China or are potentially unreliable during an armed conflict. The Department of Defense must increase resiliency by expanding our domestic industrial base as well as fostering industrial cooperation with trusted allies and partners that offer additional capability and capacity in important areas. In exercising various legal authorities to balance these objectives, the Department must rationalize and execute a comprehensive strategy to develop, support, and maintain trusted and assured sources of critical goods from domestic or friendly nation sources, and leverage that strategy beneficially to address industrial capacity for other important materials and goods. In establishing an assessment process for considering all available mechanisms, the Department must enhance defense industrial base resiliency, minimize espionage vulnerabilities, support domestic economic growth, and limit the potential for foreign sabotage or disruption of United States access to critical sources of supply.

The conferees note that a variety of mechanisms are available to the Department and codified in title 10, United States Code. The conferees note that the assessments themselves required by this provision are intended neither to effect the removal or addition of covered items to statutory lists subject to sourcing prohibitions, nor to remove or increase the Department's ability to make a determination of nonavailability of domestic sources under domestic preference laws to meet critical needs. The conferees note that the provision is intended to initiate analyses of items where such a determination has been made, to determine whether and how to develop additional domestic capacity, and to thereby increase supply chain security.

Senate Committee Report 116-236 to Accompanying S. 4049

Analyses of certain materials and technology sectors for action to address sourcing and industrial capacity (sec. 806)

The committee recommends a provision that would require the Secretary of Defense to conduct a series of assessments of certain materials and technology sectors, such as microelectronics and pharmaceutical ingredients, to determine what action to take with respect to sourcing or investment to increase domestic industrial capacity and explore ways to entice critical technology industries to move production to the United States for the purposes of national security. The committee notes that, in 2018, the Department of Defense published a study titled ``Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States.'' The study identified several risks to the industrial base, including foreign dependency. China, Japan, and Germany were all identified as sole suppliers for critical technologies used by the United States military. Additionally, the U.S.-China Economic and Security Review Commission's 2019 annual report identified a ``growing reliance'' on products critical to the manufacturing of active pharmaceutical ingredients.

The committee notes that significant supply chain vulnerability has been demonstrated by the recent coronavirus pandemic. This represents a critical vulnerability, especially when some supply chains are under the direct control or influence of the Government of the People's Republic of China or are potentially unreliable during an actual conflict. The committee remains concerned about overreliance on non-domestic sources of supply for certain technologies and products that are critical to the national defense, including microelectronics and pharmaceutical ingredients. The committee believes that the Department must increase resiliency by expanding our domestic industrial base as well as fostering industrial cooperation with trusted allies and partners, who may offer additional capability and capacity in certain areas. The committee notes that a variety of mechanisms to balance these objectives are available to the Department and enshrined in title 10, United States Code, to include the Berry amendment and the National Technology and Industrial Base, and elsewhere in section 55 of title 50, United States Code, pertaining to the Defense Production Act. The committee notes that, in some cases, these authorities have been used to support and maintain trusted and assured sources of critical goods from domestic or friendly nation sources and may be used beneficially to address other materials and goods. In establishing an assessment process for considering all available mechanisms, the committee intends to increase defense industrial base resiliency while also reducing espionage vulnerabilities and limiting the potential for foreign sabotage or disruption of U.S. access to supply.

The committee notes that the assessments required by this provision are intended neither to lead to the removal of covered items as identified in section 2533a(b) of title 10, United States Code, nor to remove the Department's ability to make a determination of non-availability of domestic sources under section 2533a(c) of title 10, United States Code, to meet critical needs. The committee notes that the provision is intended to initiate analyses of items where such a determination has been made, to determine whether and what actions to take to develop additional domestic capacity, and to thereby increase supply chain security.