FY 2012 Defense Bill Has Sanctions, Procurement, Rare Earth Provisions, Etc.

Highlights of the trade-related provisions of P.L. 112-081 include:

Sanctions

Central Bank of Iran

According to a House Armed Services Committee summary, P.L. 112-081 establishes sanctions on foreign financial institutions that conduct significant business with the Central Bank of Iran and other Iranian financial institutions. Sixty days after enactment, the provision will prohibit any foreign financial institution from conducting business in the U.S. if the President concludes that the institution has conducted or facilitated a significant financial transaction with the Central Bank of Iran or other sanctioned Iranian financial institutions. Sanctions will apply to transactions involving the sale of oil or petroleum products if the President concludes that there is enough extra capacity in the oil markets to allow consumers to find suppliers of oil other than Iran without significantly raising oil prices. The provision exempts the export of food, medicine, and medical devices to Iran. The provision will also grant the President a national security waiver and exempt countries from sanctions if they act to significantly reduce their purchases of Iranian oil over the previous 180 days.

Procurement of Electronic Parts, Berry Amendment Uniforms, Tent Parts, Etc.

Detection and Avoidance of Counterfeit Electronic Parts

According to a Senate Armed Services Committee summary, P.L. 112-081 contains provisions to help keep counterfeit electronic parts out of the defense supply chain and provide proper accountability when suspect parts make it through, including:

• Clarifying acquisition rules to ensure that the cost of replacement and rework required by the use of suspect counterfeit parts is paid by the contractor, not the taxpayer.
• Requiring DOD and DOD suppliers, whenever possible, to purchase electronic parts from manufacturers and their authorized dealers, or from trusted suppliers.
• Requiring DOD officials and DOD contractors who become aware of counterfeit parts in the supply chain to provide written notification to the government.
• Requiring large DOD contractors to establish systems to detect and avoid counterfeit parts.
• Requiring DOD to adopt policies and procedures to detect and avoid counterfeit parts that it purchases directly, and to act on reports of counterfeit parts.
• Requiring the Secretary of Homeland Security to consult with the Secretary of Defense on the sources of counterfeit electronic parts in the military supply chain and establish a risk-based program of enhanced inspection of imported electronic parts.
• Authorizing Customs to share information from electronic parts inspected at the border with manufacturers to help determine whether parts are counterfeit.
• Strengthening penalties for counterfeiting military goods or services.

Berry Amendment Waiver for Fire Resistant Rayon Fiber Made Permanent

P.L. 112-081 makes permanent the Secretary’s authority to waive the Berry Amendment (10 USC 2533a) and procure fire resistant rayon fiber for the production of uniforms manufactured in a foreign country (under certain circumstances). (The authority for this waiver is currently scheduled to expire January 1, 2015.)

Structured Components of Tents to be Subject to Berry Amendment

P.L. 112-081 amends the Berry Amendment (10 USC 2533a) to add structured components of tents to the list of items subject to its domestic sourcing requirements.

Communist Chinese Military Companies

P.L. 112-081 expands the conditions for waiving the procurement ban on certain goods and services² from Communist Chinese military companies (10 USC 2302 note) to include the submission to congressional defense committees of a report including recommendations for developing alternative sourcing capabilities in the future.

Reports, Assessments

Feasibility of Establishing Inventory of Rare Earth Materials

P.L. 112-081 requires the Administrator of the Defense Logistics Agency Strategic Materials to submit to the Secretary an assessment of the feasibility and advisability of establishing an inventory of rare earth materials necessary to ensure the long-term availability of such rare earth materials. This assessment would, among other things, be required to identify and describe the steps necessary to develop or maintain a competitive, multi-source supply-chain to avoid reliance on a single source of supply. The Secretary is also required to submit to the congressional defense committees, among other things, a description of any actions the Secretary intends to take regarding the DoD’s plans, strategies, policies, regulations, or resourcing as a result of the assessment; and any recommendations for legislative or regulatory changes needed to ensure the long-term availability of such rare earth materials.

DoD Supply Chain Risk Assessment and Strategy

P.L. 112-081 requires the Secretary to ensure that the annual report to Congress on the defense industrial base submitted for fiscal year 2012 includes a description of, and a status report on, the sector-by-sector, tier-by-tier assessment of the industrial base undertaken by the Department of Defense. The report shall include, at a minimum, a description of the steps taken and planned to be taken to perform a risk assessment of the supply chain for such items and conduct an evaluation of the extent to which the supply chain for such items is subject to disruption by factors outside the control of the DoD; and such disruption would adversely affect the ability of the DoD to fill its national security mission.

Based on the findings from the assessment, the Secretary is required to develop a defense supply chain and industrial base strategy to ensure the continued availability of items that are determined by the Secretary to be critical to military readiness and to be subject to significant supply chain risk.

The Secretary would also be required to ensure that the annual report to Congress for FYs 2013, 2014, and 2015 includes an update on the steps taken by DoD to implement the strategy.

¹P.L. 112-081 is the National Defense Authorization Act for Fiscal Year 2012. Note that authorization legislation can establish, continue, or modify an agency or program for a fixed or indefinite period of time. It may also set forth the duties and functions of an agency or program, its organizational structure, and the responsibilities of agency or program officials. Authorizing legislation also authorizes the enactment of appropriations for an agency or program. However, separate appropriations legislation is needed to actually fund an agency and provide it with budget authority.

²Goods and services listed on the International Traffic in Arms Regulations’ munitions list.

(See ITT’s Online Archives 11121525 and 11121610 for summaries on the House and Senate adoption of the H.R. 1540 conference report.

See ITT’s Online Archives 11061718 for summary of the original House-passed H.R. 1540.

See ITT’s Online Archives 11120209 for summary of Senate passage of its own version of H.R. 1540.)

H.R. 1540 available here

House Armed Services Committee summaries of H.R. 1540 available here and here.

Senate Armed Services Committee press release on H.R. 1540 conference report available here