March 21, 2012
President's Executive Order Elevates Importance of Natural Resources
Last Tuesday, President Obama announced that the United States, the European Union and Japan filed a complaint with the World Trade Organization against China for its export restrictions on rare earth metals – materials used in a wide range of high-end technologies, including smart phones, clean energy technologies and even some weapons systems.
On Friday, President Obama followed up the announcement with an Executive Order (EO) on National Defense Resources Preparedness with the broad purpose of identifying the resources and services critical to U.S. national security. Production of non-Chinese rare earth metals is expected to increase over the next several years as mines in Australia, the United States, Malaysia and elsewhere come online. However, one of the greatest hurdles for U.S. defense planners and others in the U.S. government trying to address resource-related challenges is a lack of fidelity in the supply chains for defense systems, energy technologies and other products that undergird the national defense and economy.
President Obama’s EO is a first step in helping provide better clarity into supply chain issues. Specifically, the EO states that:
Executive departments and agencies (agencies) responsible for plans and programs relating to national defense (as defined in section 801(j) of this order), or for resources and services needed to support such plans and programs, shall:
(a) identify requirements for the full spectrum of emergencies, including essential military and civilian demand;
(b) assess on an ongoing basis the capability of the domestic industrial and technological base to satisfy requirements in peacetime and times of national emergency, specifically evaluating the availability of the most critical resource and production sources, including subcontractors and suppliers, materials, skilled labor, and professional and technical personnel;
(c) be prepared, in the event of a potential threat to the security of the United States, to take actions necessary to ensure the availability of adequate resources and production capability, including services and critical technology, for national defense requirements;
(d) improve the efficiency and responsiveness of the domestic industrial base to support national defense requirements; and
(e) foster cooperation between the defense and commercial sectors for research and development and for acquisition of materials, services, components, and equipment to enhance industrial base efficiency and responsiveness.
The EO functions in many ways reflect progress on several recommendations made in the June 2011 CNAS study, Elements of Security. That report identified a number of steps the U.S. government could take to protect against the risks of dependence on critical materials, including identifying on a regular, ongoing basis the materials most important to defense acquisitions, energy innovation and other key economic and security functions. (See part B above.)
Additionally, the president’s EO highlights an area of the defense and industrial supply chains that U.S. government acquisitions experts have struggled with: subcontracts. Indeed, in our work on the defense industrial base, evaluating mineral issues for some defense systems has been a challenge because subcontractors do not always provide information about their supply chain issues, in part because of proprietary concerns. The EO states that the "Each Secretary shall authorize the heads of other agencies, as appropriate, to place priority ratings on contracts and orders for materials, services, and facilities needed in support of programs approved under section 202 of this order," which may encourage subcontractors to disclose their supply chain issues within the acquisitions process. Given the importance of subcontractors to the entire acquisitions process, including them in a review of mineral issues will provide the U.S. government with greater fidelity of the broad range of supply chain challenges that could manifest.
Another function of the EO worth noting is the emphasis on substitutes. Section 307 states that:
The head of each agency engaged in procurement for the national defense is delegated the authority of the President under section 303(g) of the Act, 50 U.S.C. App. 2093(g), to make provision for the development of substitutes for strategic and critical materials, critical components, critical technology items, and other resources to aid the national defense.
American defense industrial analysts have been in general agreement about the need to track the level of substitutes and the uniqueness of specific minerals and other raw materials necessary to the defense industrial base. This is an important area of exploration that has implications for some key minerals. Rare earths, for example, have unique properties that make substitution difficult if not impossible. Identifying minerals that are substitutable, partially substitutable and not substitutable will help U.S. policymakers identify priorities with respect to which minerals are considered critical and should be stockpiled (if they can be).
In general, the EO marks an important step for the U.S. government in better understanding the natural resource supply chain that undergirds the U.S. economy and national defense.