On Thursday, the Senate Banking, Housing, and Urban Affairs Committee held a hearing entitled, ‘Securing America: Key Authorities Under the Defense Production Act.’
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00:00:00on the Defense Production Act by highlighting that this act is a vital tool for protecting
00:00:05the American people and securing the economic foundations of our national defense.
00:00:10The DPA was enacted during the early days of the Cold War to ensure that the United
00:00:14States could rapidly scale up domestic industrial capacity in times of national emergency.
00:00:21Over the past 70 years, it has stood the test of time, empowering presidents from both parties
00:00:26to respond to urgent security needs with decisive action.
00:00:31The world has changed dramatically since the DPA was first signed into law.
00:00:38The threats we face today are more complex and often more economically driven than ever
00:00:42before.
00:00:44Threats from adversaries weaponizing supply chains to our dangerous over-reliance on foreign
00:00:49sources for critical minerals, pharmaceuticals, and defense components, the DPA gives us the
00:00:56authority to meet these challenges head on.
00:00:59And as chairman of this committee, I believe ensuring the DPA remains a focused, reliable,
00:01:05and agile authority to support national security and true national emergency response is among
00:01:11our committee's highest priorities and responsibilities.
00:01:15The standing rules of the Senate provide this committee with jurisdiction over the defense
00:01:19production and economic stabilization.
00:01:22As we consider improvements to this act, we have an opportunity to ensure that the
00:01:26law continues to support American security and resilience in the years to come.
00:01:31That means keeping the DPA tightly tailored to the purposes for which it was created,
00:01:37defense production, emergency preparedness, and the protection of critical domestic supply
00:01:42chains.
00:01:43We must ensure that the DPA supports the defense industrial base, the backbone of our military
00:01:49strength.
00:01:50That includes investments in munitions manufacturing and advanced technologies that enable our
00:01:55warfighters to deter and defeat threats.
00:01:59It is also important to secure certain economic supply lines critical to our national interest,
00:02:05whether that is from domestic mining and processing of rare earth elements to building out second
00:02:11source capabilities for antibiotics and essential pharmaceuticals, which are overwhelmingly
00:02:16sourced overseas today.
00:02:19The COVID-19 pandemic reminded us in stark terms that we cannot rely on foreign nations
00:02:25like China to outsource the production of life-saving medicine.
00:02:30The DPA has also helped Americans in moments of natural disaster and national emergency,
00:02:36including supporting disaster relief efforts and ramping up production of PPE during COVID.
00:02:44These are the kinds of uses that fall squarely within the Act's original mission.
00:02:50It is no coincidence that the America First Agenda has prominently featured the DPA in
00:02:55its approach to national security and industrial independence.
00:02:59Notably, President Trump's Executive Order on Critical Minerals recognized that long-term
00:03:04security means reducing dependence on geopolitical rivals for resources we need to defend our
00:03:09homeland and grow our economy.
00:03:12Let me close by thanking our witnesses for being with us today and taking your time and
00:03:16providing your insights that are necessary.
00:03:20Your testimony will help inform this committee's work as we move toward a responsible reauthorization
00:03:26of the DPA.
00:03:27If we remain focused and principled, we can ensure the DPA continues to protect the American
00:03:32people, bolster our defense readiness, and secure our strategic supply chains for decades
00:03:38to come.
00:03:40Ranking Member Warren.
00:03:42Thank you, Mr. Chairman, and thank you for holding today's hearing on the Defense Production
00:03:47Act.
00:03:48I appreciate our working together on this in a bipartisan way.
00:03:52For 75 years, the Defense Production Act has been the cornerstone of our efforts to build
00:03:59a more robust industrial base and advance our national defense.
00:04:05Congress passed the DPA in 1950, and President Truman rapidly deployed it to help our country
00:04:12mobilize for the Korean War.
00:04:14Throughout the Cold War, we used the DPA to mobilize the nation's industrial might.
00:04:20During the 1980s and 90s, we used the DPA to seed investments in key technologies like
00:04:26microelectronics and metal composites that enhanced our warfighting capabilities and
00:04:34our technological edge.
00:04:36When Hurricane Katrina devastated the Gulf Coast, we used the DPA to speed up the distribution
00:04:43of fuel to the disaster zone.
00:04:45During the early days of the COVID-19 pandemic, the Trump administration used the DPA to fast-track
00:04:52production of defibrillators and masks and other medical equipment.
00:04:58When the People's Republic of China threatened to cut off our access to critical minerals,
00:05:02the Biden administration used the DPA to jump-start critical mineral production in
00:05:08the United States.
00:05:09In the toolkit of economic and national security tools, the DPA is among the oldest, and it
00:05:16is absolutely essential to the challenges our country faces today and into the future.
00:05:23For decades, our nation offshored jobs and industries.
00:05:28We failed to invest in growing, dynamic, competitive markets in critical industries
00:05:33here at home.
00:05:35We let big corporations grow, crush competition, and pursue short-term profits, even when it
00:05:42meant depriving us of good-paying jobs, of undermining our technological edge, and eroding
00:05:49our industrial base.
00:05:51The results speak for themselves.
00:05:53Today we have more fragile supply chains and are more dependent on foreign countries
00:05:59than at any point in modern American history.
00:06:02Just take a few examples.
00:06:04In 1990, we made 37 percent of the world's chips.
00:06:09Today we make only 12 percent.
00:06:12In 1986, we had U.S.-flagged ocean-going vessels.
00:06:19Today we have 80.
00:06:21Because of offshoring by big pharma, 9 out of every 10 prescriptions filled in the United
00:06:28States was manufactured overseas.
00:06:32This leaves us dangerously vulnerable.
00:06:35It takes one major disruption—a fire at a factory halfway around the world, a war
00:06:41between two foreign countries, or a natural disaster abroad or at home—to cause massive
00:06:47supply chain disruptions.
00:06:50In 2021, a drought in Taiwan and severe weather in Texas led to a global semiconductor shortage
00:07:00that shut down production lines across the United States.
00:07:05Experts estimated that this single disruption cost the United States economy $240 billion
00:07:15in one year alone.
00:07:17A similar disruption in the supply chain for life-saving drugs and antibiotics could be
00:07:22economically devastating and cost American lives.
00:07:27As we struggle, the People's Republic of China moves forward.
00:07:32China has used non-market policies and practices to capture crucial industries like semiconductors,
00:07:39batteries, and pharmaceuticals—industries that we once dominated.
00:07:45China is also using its leverage over critical supply chains to exert more influence internationally.
00:07:52In recent months, the Chinese government has implemented bans on export of critical minerals
00:07:57and rare earth magnets to the United States in response to President Trump's tariffs,
00:08:04and even told countries like South Korea that rely on Chinese inputs that they must stop
00:08:11exporting critical minerals and equipment to some U.S. companies.
00:08:17We don't need to accept this.
00:08:18We have the tools to reassure critical supply chains.
00:08:22We can deepen cooperation with our allies.
00:08:25And we can build resilience here at home.
00:08:29One tool to help us do that is the Defense Production Act, which we must reauthorize
00:08:34before it lapses in September.
00:08:37Mr. Chairman, I appreciate your holding this hearing, and I am eager to work with you on
00:08:42these critical issues.
00:08:43Thank you very much, Ranking Member.
00:08:45And we'll turn to our witnesses before us today.
00:08:48Our first witness will be Ms. Mackenzie Lyon, Vice President for External Affairs at Perpetua
00:08:54Resources.
00:08:55Ms. Lyon, you are now recognized for five minutes.
00:08:59Good morning, Chairman Scott, Ranking Member Warren, and members of the committee.
00:09:05Thank you for this opportunity.
00:09:06My name is Mackenzie Lyon, I am an Idahoan, and I am Vice President of External Affairs
00:09:12for Perpetua Resources.
00:09:14And I'm here today to share the story of the Stipnite Gold Project, which is located in
00:09:19the heart of central Idaho, and is designed to return to and restore an abandoned mining
00:09:25site and responsibly produce gold and the critical mineral antimony.
00:09:31And I hope to share with you how the Defense Production Act has successfully saved America's
00:09:37only reserve of antimony.
00:09:40Over the past two decades, China has invested more than $57 billion in controlling critical
00:09:47mineral supply chains around the globe.
00:09:50And today, the majority of U.S. defense materials are reliant on Chinese minerals like antimony,
00:09:56gallium, germanium, and tungsten.
00:09:59China is wielding this dominance as leverage, and has formally cut off all exports of antimony,
00:10:06gallium, germanium, and tungsten to the United States, wounding our defense readiness and
00:10:12American manufacturing capabilities.
00:10:16Yet, when the American defense industrial base turns to American miners to fill the
00:10:23gap, we are hobbled out of the starting gate with a 29-year average, from identifying a
00:10:30mineral resource to getting it out of the ground.
00:10:34Put it simply, we are dangerously reliant, and we are behind.
00:10:40And antimony is a great example.
00:10:42We have no domestically mined source of antimony.
00:10:45Today, China, Russia, and Tajikistan control 90% of the global supply.
00:10:52But it is critical to our energy, technology, and defense readiness.
00:10:57In addition to numerous commercial applications, the Department of Defense uses a specialized
00:11:02form, antimony trisulfide, as a key non-replaceable component as the primer in hundreds of munition
00:11:10types.
00:11:11But, in 2021, China informally stopped shipping our sole source of military-grade antimony
00:11:19trisulfide to the United States.
00:11:22This is the context for our DPA award to revive the Stipnite Mining District.
00:11:28But the story is not new.
00:11:30On the eve of World War II, the Japanese blockade in the Pacific and invasion of China blocked
00:11:37the American supply of tungsten and antimony that we needed for the war effort.
00:11:43So through the U.S. Strategic Materials Program, a precursor to DPA, the government enabled
00:11:50the Stipnite Mine to supply both antimony and tungsten for the Allied war effort.
00:11:56The men and women of Stipnite, Idaho are credited with shortening World War II by a year, saving
00:12:02a million American lives.
00:12:04That's how important it is to access these minerals in our backyard.
00:12:09Today, Stipnite has one of the largest resources of antimony not controlled by the Chinese,
00:12:15but the site was left abandoned.
00:12:17In 2010, our company set out with a vision that we could redevelop Stipnite for gold
00:12:22and antimony while providing comprehensive environmental restoration to this abandoned
00:12:26site.
00:12:27But in 2022, we were 12 years on and $300 million in and facing another permitting delay.
00:12:36As a single asset company entirely reliant on private investment, the market was exhausted
00:12:41by delay.
00:12:43We were almost out of funds and running out of options that wouldn't stall development.
00:12:48These are the moments that the Defense Production Act was created for.
00:12:52An open solicitation under DPA was our lifeline.
00:12:56China had just stopped shipping antimony trisulfide to American defense manufacturers, and thankfully
00:13:02the leaders of the Army's Picatinny Arsenal, the Industrial Base Policy Office, the Defense
00:13:07Logistics Agency, and the Air Force contracting team acted with urgency to bring us into the
00:13:12program.
00:13:13It has since invested $59 million.
00:13:17That $59 million kept our permitting process on track, and as of this week, we have earned
00:13:22all of our federal permits.
00:13:24It attracted an additional $54 million in private investment, giving hope to the market,
00:13:30and it put us on the precipice of a $2 billion investment in rural Idaho, meaning hundreds
00:13:35of jobs and more than a half billion dollars in federal and state taxes.
00:13:39With all federal permits now in hand, we proudly consider ourselves a DPA success story.
00:13:45DPA's effectiveness is due in large part to its agility to meet industry where its needs
00:13:50are, whether to advance feasibility studies, expand processing and manufacturing capabilities,
00:13:56and provide offtake certainty.
00:13:57DPA needs to step in when the private market cannot.
00:14:01America's excellence is rooted in innovation, hard work, and competition, and DPA is a powerful
00:14:06tool to supercharge this excellence when we need it the most.
00:14:10It is the temporary scaffolding American businesses need to be resilient in hard times so that
00:14:16we can respond to our nation's needs.
00:14:18Mr. Chairman, Ranking Member, I just thank you for your leadership on this issue, and
00:14:23I look forward to this discussion.
00:14:25Thank you, Ms. Lyon.
00:14:27Next we'll hear from Mr. Jared Brown, Executive Director of Global Shield.
00:14:31Mr. Brown, you have five minutes as well.
00:14:35Thank you, and good morning, Chairman Scott, Ranking Member Warren, and distinguished members
00:14:39of the committee.
00:14:40I'm honored to testify to you before today on the importance of the Defense Production
00:14:44Act to our national security and defense.
00:14:48My name is Jared Brown, and I am the co-founder and Executive Director of Global Shield.
00:14:52We are a nonprofit organization dedicated to helping the nation manage global catastrophic
00:14:58risk.
00:14:59Simply speaking, global catastrophic threats are the very worst crises our nation could
00:15:04face and range from nuclear war to global pandemics.
00:15:09They pose the risk of trillions of dollars in economic damage and millions of lives lost.
00:15:15These threats are so concerning that Congress passed the Global Catastrophic Risk Management
00:15:20Act into law in 2022 to help prepare the U.S. for these threats.
00:15:27The DPA is a core instrument of the nation's preparedness for and response to global catastrophic
00:15:32risk.
00:15:33As you are aware, the DPA's Title I authorities ensure that government is given priority access
00:15:39to products and services that are necessary in a time of crisis.
00:15:43DPA's Title III authorities help ensure that we have adequate supply of those products
00:15:48and services in a time of need.
00:15:51In the context for planning for and responding to catastrophes abroad and at home, I would
00:15:57like to make three key points about the future-ready DPA.
00:16:03First, it is not an exaggeration to say that dealing with any worst-case scenario that
00:16:09you can imagine depends, in part, on DPA authorities.
00:16:13Be it a major global military conflict, a pandemic killing millions of Americans, a
00:16:20terrorist use of a chemical or biological weapon in a U.S. city, or a catastrophic hurricane
00:16:27or earthquake, all of our plans include the use of authorities under this Act.
00:16:33For every national security crisis that keeps policymakers up like you at night, the DPA
00:16:40is an indispensable tool for saving American lives.
00:16:44Therefore, we urge Congress to reauthorize and modernize these authorities this year.
00:16:50Second, even though our government agencies know how critical DPA authorities are in catastrophic
00:16:57scenarios, our plans for using the authorities are often based on unrealistic expectations
00:17:03about the private sector.
00:17:05Often, the government's planning says, in effect, if we had a shortage of this key good
00:17:11or needed more of this key service, we will use the DPA authorities and hope that the
00:17:17private sector can respond.
00:17:19However, just because the government has the authority to order the more production
00:17:24of a good does not mean, of course, the private sector can magically summon up that service.
00:17:30Therefore, government agencies must work more closely with industries and service providers
00:17:36to better understand their true capabilities ahead of a crisis.
00:17:41We recommend that you reauthorize and modernize the DPA's Title VII authorities so that government
00:17:48agencies can improve plans with private sector experts to anticipate problems and so that
00:17:55government agencies can deploy private sector experts into government during a crisis.
00:18:01Third, since the end of the Cold War, oversight and coordination in the DPA inside the executive
00:18:08branch has atrophied.
00:18:11Congress has made numerous attempts to revitalize good governance inside the executive branch
00:18:17through past reauthorizations of the DPA, including with the creation of an interagency
00:18:23DPA committee, also known as the DPAC.
00:18:27Unfortunately, these reforms have not been successful as hoped.
00:18:32What makes this situation worse is that the private industry and supply chains are vastly
00:18:38more complicated and sophisticated than they were in 1950.
00:18:42In turn, this makes the government plans for using the DPA to manage extreme risk even
00:18:49more complex.
00:18:50To help address this problem, we recommend that Congress improve the transparency and
00:18:56governance of the DPA under Title VII.
00:19:00It will benefit the nation both before and during a crisis if the private sector and
00:19:05policymakers are more aware of how the government plans to use DPA authorities during a real
00:19:12catastrophe.
00:19:14Thank you again, committees, for your attention to this important DPA authority and for its
00:19:20use in safeguarding America.
00:19:22With that, I look forward to your questions and supporting future reauthorization efforts.
00:19:26Thank you, Mr. Brown.
00:19:27Next, we'll hear from Dr. John McGinn, Executive Director of the Brony Center for Government
00:19:32Contracting at George Mason University.
00:19:37Thank you, Chairman Scott, Ranking Member Warren, Senator Moreno, Senator McCormick,
00:19:42for the opportunity to speak with you today.
00:19:44I run the Center for Government Contracting at George Mason University.
00:19:48Prior to that, I was a career SES responsible for DPA authorities in DOD, Title III and
00:19:54Title VII, specifically CFIUS, which we'll talk about.
00:19:57From my opening statement, I want to focus on how we can strengthen the DPA for the future.
00:20:02As you both outlined, the DPA gives the President broad authority to ensure timely availability
00:20:08of essential domestic industrial capabilities.
00:20:12As I described in my written testimony, there are three active titles, Title I, Title III,
00:20:17and Title VII, that have been used with great effect, as Senator Warren outlined, for decades.
00:20:23While the authority is strong overall, there are some opportunities for strengthening and
00:20:26revitalizing the authorities.
00:20:28First of all, I recommend that it is essential to keep DPA firmly focused on defense and
00:20:34national security issues.
00:20:36In particular, threats from our critical competitor, China.
00:20:41Using DPA outside of direct national security or national emergency purposes, threatens
00:20:47the viability of this unique tool of our industrial base.
00:20:50DPA Title I, Title I is focused on the distribution and allocations of goods and services.
00:20:56It has been used to prioritize the contracts of many key defense systems for decades.
00:21:02It also was used to great effect during the COVID-19 crisis, rating over $3 billion in
00:21:08contracts for the production of ventilators and protective personnel equipment.
00:21:14While this works well, at the national level, the DPA is governed by old and overlapping
00:21:18executive orders spanning several administrations that need to be refreshed and simplified.
00:21:24The Trump administration should conduct a thorough review to better orient DPA policies
00:21:30and practices for today's challenges.
00:21:32DPA Title III.
00:21:34Title III, as our colleagues have outlined, is a tremendous tool for building industrial
00:21:38capacity through grants, loans, purchases, and purchase commitments.
00:21:45Two examples of recent impact include $1 billion, which is appropriated during COVID through
00:21:50the CARES Act for pandemic response, as well as other industrial-based needs.
00:21:56And then in 2023, over $500 million was appropriated for projects in areas such as specialty chemicals,
00:22:03hypersonics, microelectronics packaging, strategic and critical minerals, and solid rocket motors.
00:22:11Title III, however, could be significantly strengthened by three ways.
00:22:15Number one, removing the non-delegable requirement that the president sign each DPA determination,
00:22:24which greatly reduces and slows the process through which DPA projects are developed and executed.
00:22:30Number two, enabling the use of purchase commitments to create a guaranteed demand signal over time
00:22:38for industrial capabilities such as critical minerals.
00:22:41These offtake agreements will, through purchase commitments, will do that.
00:22:45And finally, third, raise the DPA fund ceiling, which is currently at $750 million, to enable
00:22:52the use of purchase commitments and other Title III investments.
00:22:56Title VII.
00:22:57Title VII has several components, including industrial-based assessments, voluntary agreements,
00:23:04and it governs the Committee on Foreign Investment in the United States, or CFIUS.
00:23:11Title VII can be strengthened by three areas, two of which have to do with sections of Title
00:23:17VII that have been scarcely used since the end of the Cold War.
00:23:21First is Section 708, which permits the government to establish voluntary agreements between
00:23:26government and industry in specific sectors, such as critical minerals or the like, that
00:23:32would be, as we noted in a recent report that we published on Title VII, increasing the
00:23:38use of these voluntary agreements is a critical way to increase overall industrial capacity.
00:23:44Section 710 enables the establishment of a cadre of industry executives to be trained
00:23:51for government service in the event of a national emergency.
00:23:54This National Defense Executive Reserve authority has not been active since the end of the Cold
00:23:59War, and we need to develop a new model for how to use National Defense Executive Reserve
00:24:05in the future.
00:24:06Finally, the 2018 Foreign Investment Risk Review Modernization Act, or FIRMA, which
00:24:13Congress kindly passed and the President signed, modernized CFIUS to address concerns principally
00:24:21from China, but there's always room to improve this authority.
00:24:25There's several bills that have been introduced, including the Bipartisan Pass Act and the
00:24:28Bipartisan Protect Act, and I look forward to their consideration by Congress.
00:24:34In conclusion, the DPA is a critical presidential authority designed to specifically address
00:24:39the industrial issues we face today.
00:24:41It's been reauthorized 53 times, and in most recent cases, it's been extended for five
00:24:47or six years.
00:24:49It is vital that the Congress reauthorize DPA, and it's incredibly heartening to hear
00:24:53that you're all committed to do so.
00:24:58I respectfully recommend you work to complete a long-term reauthorization this year, if
00:25:04at all possible.
00:25:05Thank you very much for your time, and I look forward to your questions.
00:25:11Lastly, we have Dr. Rush Doshi, the CVSTAR Senior Fellow at the Council on Foreign Relations.
00:25:17Dr. Doshi, you are recognized for five minutes.
00:25:21Good morning, Chairman Scott, Ranking Member Warren, distinguished members of the committee.
00:25:24Thank you very much for the opportunity to testify today on the Defense Production Act.
00:25:28My remarks will make four points.
00:25:30First, China is an ambitious and formidable competitor.
00:25:33Second, the United States needs the DPA to cope with the various military and non-military
00:25:37challenges that China poses.
00:25:39Third, China's system has far broader authorities than the DPA, putting us at a disadvantage,
00:25:44and fourth, smart reforms to the DPA can address concerns about overuse without narrowing
00:25:48its scope.
00:25:49I'll now discuss each of these.
00:25:51First, China has a grand strategy to displace U.S.-led order.
00:25:54It seeks to catch up and surpass the U.S. technologically, to make the world dependent
00:25:58on China's supply chains economically, and to acquire the capability to defeat U.S. forces
00:26:03militarily.
00:26:04It is now 130 percent of U.S. GDP by purchasing power, two times the U.S. share of global
00:26:09manufacturing, and two times U.S. power generation.
00:26:13Second, without DPA reauthorization, we simply cannot address China's military and non-military
00:26:18threats.
00:26:20Beijing is undertaking the fastest military buildup in its history.
00:26:25It now boasts 200 times our shipbuilding capacity, 80 percent of global drone production, and
00:26:30global leadership in hypersonics.
00:26:32In five years, it will add 65 vessels to its navy, which will then be nearly 50 percent
00:26:36larger than ours.
00:26:38By contrast, in a conflict with China, we would expend our most critical munitions within
00:26:42about a week.
00:26:44We also face significant non-military challenges.
00:26:46One is a new era of cyber warfare.
00:26:49Beijing is planning cyber attacks on critical infrastructure across sectors like power,
00:26:53water, gas, telecom, and transportation, which would affect the lives of tens of millions
00:26:58of Americans.
00:26:59Another challenge is a new era of geoeconomic warfare.
00:27:02Beijing is leveraging its chokehold on rare earths and rare earth magnets today to throttle
00:27:07American manufacturing in the current trade war.
00:27:09It could do the same in antibiotics, where it has a 90 percent market concentration,
00:27:13denying Americans life-saving medicines.
00:27:15The DPA is critical to addressing these threats.
00:27:18DPA Title III can fund new production lines for cruise missiles and uncrewed systems,
00:27:24expand shipyard capacity, and reassure the batteries, motors, and rare earths China now
00:27:28makes.
00:27:29DPA Title VII can help us find PRC threat vectors in our networks and critical dependencies
00:27:35in our supply chains.
00:27:36DPA Title I and Title III can help us reallocate goods or boost production after a debilitating
00:27:41cyber or supply chain attack.
00:27:44Failing to extend the DPA or narrowly reauthorizing it to focus exclusively on defense items,
00:27:49as some propose, would risk leaving us dangerously exposed.
00:27:51It deprives President Trump of a tool that he needs to win the current trade war or to
00:27:56reassure production.
00:27:57It undermines his executive order on critical minerals, which is grounded in DPA authorities.
00:28:02It makes it harder for us to deal with cyber attacks and supply chain shocks, and it makes
00:28:06a future Operation Warp Speed all but impossible.
00:28:10It also overlooks history.
00:28:11When Congress passed the DPA, it modeled it after the War Powers Acts of 1941 and 1942.
00:28:17Those acts recognized that defense and civilian economies blurred and that economic security
00:28:21was critical to national security.
00:28:23Third, China's defense production authorities vastly exceed our own.
00:28:28The PRC system is comprised of its national defense mobilization law, its emergency response
00:28:33law, and various ad hoc administrative measures.
00:28:36It legally requires all PRC citizens, companies, universities, and state enterprises to fully
00:28:41support defense mobilization.
00:28:44The PRC effectively has total power to redirect production, reassign personnel, and requisition
00:28:48property.
00:28:49The PRC also maintains a detailed registry of mobilization assets.
00:28:53Americans would rightly reject this system, which is far more coercive than our own.
00:28:57We should also recognize that China's system might move more quickly and comprehensively
00:29:01and effectively against us in a crisis or conflict, and we should therefore be wary
00:29:05of scaling back our system, which has served us for 70 years prematurely.
00:29:09Fourth, we can't reform DPA, I think, without narrowing its scope.
00:29:13First, I think instead of narrowing the DPA to military production only, Congress should
00:29:17consider updating the definition of national defense as it has many times in years past,
00:29:23this time by providing relevant domains, scenarios, threats, or tiered justifications
00:29:27for invoking DPA.
00:29:29That could keep DPA flexible, keep it strategic, without making it a catch-all tool.
00:29:34Second, Congress should allow DPA Title III investments in allied nations that support
00:29:38the defense industrial base.
00:29:40China outscales the United States today, but the U.S. with its allies outscale China if
00:29:44we work together.
00:29:45Third, Congress should establish multi-year DPA Title funds and authorize an appropriate
00:29:49funding for key national security priorities like missile production and rare earth processing,
00:29:55as we've already discussed.
00:29:56And fourth, Congress should appropriate funds and encourage agencies to reactivate the now-dormant
00:30:01National Defense Executive Reserve, originally established under DPA Title VII, to ensure
00:30:06a pool of industrial experts available in a crisis.
00:30:09Since the 1950s, Congress has reauthorized or extended the DPA more than 50 times.
00:30:14In light of the current China challenge, it's critical to do so again.
00:30:17I thank you for your time, and I look forward to your questions.
00:30:21Thank you very much, Dr. Doshi.
00:30:23We'll first have our questions come from Senator Moreno, who will take my spot, and I'll take
00:30:29his later on.
00:30:30All right, perfect.
00:30:31Well, thank you, Chairman, for doing this, for having this very important session.
00:30:36It's something that's long overdue.
00:30:38So I'll start with you, Dr. McGinn.
00:30:41You talked about CFIUS, near and dear to my heart.
00:30:44As you know, CFIUS plays a critical role in reviewing inbound foreign investments,
00:30:48as you described.
00:30:50President Trump recognized a glaring loophole in the law, which currently does not cover
00:30:54Greenfield investments, but rather only allows CFIUS to review investments of acquisitions
00:31:01of existing U.S. companies.
00:31:03I introduced a bipartisan bill called the PROTECT Act with my colleagues Alyssa Slotkin
00:31:07and Senator Tim Sheehy, which would close this loophole and ensure that all Greenfield
00:31:11and Brownfield transactions from foreign countries of concern are reviewable by CFIUS.
00:31:17Do you believe that this would be helpful to better protect our national security for
00:31:20potentially harmful or threatening investments by foreign countries?
00:31:25Thank you for the question, Senator Moreno.
00:31:27As you know, CFIUS is an incredibly powerful tool for our government to protect national
00:31:34security interests.
00:31:37Greenfield investments have long been not part of CFIUS because CFIUS looks at individual
00:31:43business transactions, but it is totally the prerogative of the Senate to consider adding
00:31:48that as a potential thing that should be covered under CFIUS.
00:31:53I look forward to the conversations that you're going to have and deliberations on that, and
00:31:59in working with the agencies to see the practical ramifications of that and how that would be
00:32:04doable.
00:32:06We'd love to have you take a look at the bill if you haven't already done it, and we'd love
00:32:09to get that across the finish line.
00:32:12It's a rare bipartisan bill, and hopefully we can get that done.
00:32:14It's common sense.
00:32:15I'd love that.
00:32:16Along those same lines, I understand that the DPA Fund, which is held by Treasury but
00:32:20managed by the Department of Defense, used to be managed at an Air Force research laboratory
00:32:26housed at a place called the Wright-Patterson Air Force Base in Dayton, Ohio.
00:32:31Over the last two years, the Pentagon moved the management of the DPA Fund out of Ohio
00:32:36and centralized it in a new management structure called the Defense Priorities and Allocation
00:32:41System.
00:32:42However, I heard concern that this new system does not adequately follow established contracting
00:32:48best practices.
00:32:49Dr. McGinn, could you talk about DPAS systems shortcoming and contrast them to the phenomenal
00:32:56world-class perfection management system in Dayton, Ohio?
00:33:02Not biased at all on that question, though, to be clear.
00:33:05Thank you, Senator.
00:33:06Yes, so the Air Force is currently the executive agent for the conduct of Defense Production
00:33:12and Title III projects, and they've delegated further to Wright-Patterson Air Force Research
00:33:18Lab to do the contracting and execution of Title III projects, but that is still the
00:33:25case that they're doing that.
00:33:28The DPA Fund is managed by the Department of Defense.
00:33:32I was not aware that that is not managed by, as far as I know, by Wright-Patterson itself,
00:33:39but by the Office of the Secretary of Defense, so there hasn't been a movement of that degree,
00:33:45but I've worked with the personnel at Wright-Patterson when I was in government, and they are phenomenal,
00:33:53and they continue to do phenomenal work.
00:33:54Yeah, they move the functions out, which the reality is we should be moving functions in
00:33:59to centralize that.
00:34:00It makes sense to have all of that together.
00:34:02It makes, as you know, a lot of efficiencies, and I don't want to keep picking on you for
00:34:06questions, but we'll keep it going here.
00:34:09I'm particularly concerned that the powers that over the last administration, the DPA
00:34:16powers were bastardized, in a sense, and expanded beyond congressional intention by the Biden
00:34:22White House in areas like green energy, for example, which was clearly a political move,
00:34:27not a national security move.
00:34:29Why is it critically important for DPA to maintain its focus on national defense in
00:34:33a nonpartisan way, and what dangers could arise if it doesn't to fortify political positions
00:34:40rather than national security positions?
00:34:43Great question, Senator.
00:34:44Yeah, I would say, as we've seen very clearly in this hearing, DPA is a bipartisan supported
00:34:53authority, and it works best when it really focuses on those bipartisan interest areas.
00:35:01The real priority areas for DPA have been traditionally defense or true national emergency
00:35:07efforts.
00:35:08Now, when DPA is used in other ways, such as what you're referring to, it sometimes
00:35:14can become politically kind of charged, and if the DPA becomes politically charged, that
00:35:19is always really bad.
00:35:22Some of the things that we live with today, for instance, the cap on the DPA fund of $750
00:35:28million, that is a result of a previous reauthorization of the DPA where there was a ... Some projects
00:35:35were done that were not agreed with politically that then led to the reauthorization to put
00:35:41more strictures around DPA.
00:35:45It is imperative to keep DPA focused on clear bipartisan focused efforts, and if priorities
00:35:54are in other areas, there are other means to do those kind of legislative efforts.
00:36:00I yield, but Mr. Chairman, I think that's ... For the ranking member, I think that's
00:36:03really important as we discuss DPA, that it becomes completely apolitical, and it's
00:36:09about protecting our country and not getting into political priorities and using funds
00:36:14that way.
00:36:16Agreed.
00:36:17Ranking member Warren, you are next.
00:36:18Thank you, Mr. Chairman.
00:36:19I disagree with the President's disastrous approach to worldwide tariffs.
00:36:25He's causing economic chaos and uncertainty that are hurting workers and working families
00:36:32and small businesses all around this country.
00:36:35If he continues his giant game of on-again, off-again tariffs, he's going to push our
00:36:40country into a recession.
00:36:43Tariff reform is badly needed.
00:36:46The mantra embraced for decades by many Democrats and Republicans alike, that free trade with
00:36:53China would somehow work to our favor, was flatly wrong.
00:36:58Those policies, combined with China's aggressive trade practices, have cost millions of Americans
00:37:04their jobs.
00:37:05They have also undercut our economic and national security.
00:37:09Beijing is increasingly using its significant leverage over critical supply chains to exert
00:37:16influence around the world while the United States stands by.
00:37:21During the Biden administration, the PRC restricted the export of several critical minerals, gallium,
00:37:28germanium, graphite, antimony, right, in response to U.S. export controls.
00:37:35Now, during the Trump administration, the PRC has cut off access to several more critical
00:37:42minerals.
00:37:43Mr. Doshi, you worked on China policy at the National Security Council, and you have seen
00:37:49the importance of addressing China's leverage over critical supply chains.
00:37:54How important is the Defense Production Act to reshoring those critical chains and competing
00:38:02with China?
00:38:03Well, thank you, Ranking Member Warren.
00:38:05It is essential.
00:38:0630 years ago, when China joined the World Trade Organization, the United States was
00:38:10about 30% of global manufacturing value-add.
00:38:13Today, we're 17%, and in five years, we might be 11%.
00:38:16That's not a great situation.
00:38:18As you mentioned in your opening, the Defense Production Act is critical to expanding American
00:38:22industrial capacity.
00:38:23If we want to reduce dependence on Chinese critical minerals, we need DPA.
00:38:26If we want to produce cruise missiles or ships, we need DPA.
00:38:29If we want to surge production after a supply chain attack, we need DPA as well.
00:38:34I think it's essential right now, with China throttling American industry by going after
00:38:38rare earths and rare earth magnets in the trade war.
00:38:40I think President Trump needs DPA in order to be able to effectively negotiate with the
00:38:44PRC.
00:38:45Yeah.
00:38:46I agree with you on this.
00:38:47I don't support the President's trade war in the way that he's conducting it, but I
00:38:52do think that the President needs tools like the DPA to be able to stand up to Xi Jinping.
00:38:59We also need a strong DPA to protect our medical supply chains and protect us from persistent
00:39:05shortages of many generic drugs.
00:39:08We can't defend our country if we can't provide life-saving drugs to our service members and
00:39:14to our citizens.
00:39:16According to the Defense Logistics Agency, 27 percent of the DoD's pharmaceutical supply
00:39:22chains are considered very high risk.
00:39:26That's one in every four, because they are dependent on China or just an unknown source
00:39:32that nobody can figure out.
00:39:34Another 27 percent, that puts us well over half, is at high risk because they are dependent
00:39:41on non-Trade Agreement Act-compliant countries.
00:39:45Mr. Brown, we have become dangerously dependent on foreign countries for pharmaceuticals,
00:39:52including active pharmaceutical ingredients.
00:39:55How should we be using the DPA to onshore drug manufacturing, to address shortages,
00:40:02and to build resilience?
00:40:06It's a great question, Senator.
00:40:08This has been an area of bipartisan consensus for many years.
00:40:12Recently, we've been using Title III funding from the DPA to help onshore some of this
00:40:17critical capacity.
00:40:19The current administration, through HHS, is having a hearing and a roundtable this June
00:40:24with industry to further address this issue.
00:40:28You can imagine how much worse it could get if we were facing a mass casualty scenario
00:40:33here in the homeland.
00:40:35To be clear, this is not just a foreign sourcing issue.
00:40:39We've had shortages of IV fluid following two different hurricanes.
00:40:43First with Hurricane Maria, and then again with Hurricane Haleen, affecting manufacturing
00:40:49supply chains here in the United States.
00:40:52The DPA is important, not just for onshoring, but enhancing the resilience of the supply
00:40:56chain here and abroad.
00:40:58I appreciate that.
00:40:59I appreciate your expanding out our vision of what we're talking about here.
00:41:04This risk is not theoretical.
00:41:06It can cost American lives.
00:41:08I've introduced multiple bills to try to reinvigorate drug manufacturing here at home.
00:41:14It is clear that we need to use every tool at our disposal to create resilience in these
00:41:21supply chains.
00:41:22I want to thank all of our witnesses for being here and helping us understand the importance
00:41:28of using the DPA to protect national defense.
00:41:33Ms. Lyons, we use critical minerals across our supply chains, from defense munitions
00:41:39to commercial vehicles.
00:41:40The United States is home to many of these minerals.
00:41:44However, it's extremely challenging, time-consuming, and capital-intensive to open or expand mining
00:41:49facilities in the United States, and frankly, during your testimony, it seemed to me that
00:41:54the government creates a problem through permitting, and then we want to solve the problem through
00:41:58financing.
00:42:00It seems to me if we could eliminate the problem through permitting, we could not have to use
00:42:04the dollars for financing and then have other options available later.
00:42:09Talk to me about that.
00:42:11Thank you, Senator, for the question.
00:42:14You're absolutely right that we have a problem of the left hand of government not always
00:42:19knowing what the right hand needs.
00:42:23Part of the value for us of the Defense Production Act, when we were six years into our permitting
00:42:30process for which we were spending an average of $2 million a month to get through as a
00:42:38single asset company, we were stuck.
00:42:42It was really hard to figure out, A, how to get our federal agencies to even talk to each
00:42:48other, to coordinate, to come to an agreed set of milestone expectations, but receiving
00:42:56the award sent the signal across the federal family that this had to be a priority, that
00:43:03we needed our agencies to work together to solve a problem.
00:43:09I will say that working with the Defense Department was a refreshing experience of people who,
00:43:17when confronted with a problem, are mission-driven to find a solution.
00:43:24That mentality absolutely helped us get to where we are today, but for that coordination
00:43:32and accountability and transparency, I don't think we would be.
00:43:38However, the twenty-nine years to open a mine is not frustrating, but infuriating.
00:44:03That alone should provide an opportunity for us not to talk just about talking across
00:44:08lines but just solving that one simple problem that will be persistent for many years to
00:44:15come if we don't fix that one issue.
00:44:17Yes, sir.
00:44:19That twenty-nine year time frame is the second longest in the world, second only to Zambia.
00:44:26I have full faith in this country's ability to do great things, but this is not one of
00:44:31them right now.
00:44:32We have the right environmental standards.
00:44:34We have the right public transparency in our process, but we need to focus on how to make
00:44:39it a more coordinated process.
00:44:41We are returning to an abandoned mine site, a site that is in real trouble environmentally,
00:44:46and we've offered to clean it up.
00:44:49We've got a critical mineral that's important for our strategic defense.
00:44:53Our time frame, it's not going to be twenty-nine years, but it'll be at least eighteen.
00:44:57It's crazy.
00:44:58Well, I have limited time.
00:45:00I keep myself to the same five minutes that I do require for everybody else.
00:45:05Dr. Doshi, you talked about the definition of national defense, obviously cyber security
00:45:11technology.
00:45:12I think of Huawei as a real, actual existential threat, perhaps space.
00:45:16I think about satellites, pharmaceuticals, we've talked about that.
00:45:21If with limited time, talk to me about the need to define and perhaps expand the definition
00:45:27of national defense.
00:45:29Well, thank you very much, Chairman Scott.
00:45:32We've had to redefine national defense and DPA many times, at least four times in the
00:45:3670s, 80s, 90s, 2000s, and I think we have to do so, again, to consider some of the challenges
00:45:41that the PRC will pose to us.
00:45:43Supply chain attacks can occur in areas outside pharma, outside critical minerals.
00:45:47Cyber attacks can have implications for the wider country beyond simply just the loss
00:45:52of a piece of critical infrastructure.
00:45:54I think expanding the definition could be done in multiple ways, sir.
00:45:57One way is to list out scenarios that we want to plan against, another is to list domains
00:46:01as we have in the past, like space, that we want to make sure we're defending in, and
00:46:05another would be to offer tiered justifications.
00:46:08If this, then DPA can be activated.
00:46:10We should allow us to address some of the concerns Senator Moreno raised about the excessive
00:46:15use of DPA, hopefully depoliticize it, and I guess my answer, sir, would be definitions
00:46:19can help depoliticize the term.
00:46:21I'll return in my 15 seconds, and Senator Kim, you're next.
00:46:26Thank you, Chairman.
00:46:27Mr. Brown, I wanted to start with you just to talk through and build off of some of what
00:46:32was talked about.
00:46:33The Strategic Active Pharmaceutical Ingredient Reserve, it was created as a pharmaceutical
00:46:38equivalent in many ways to the Strategic Petroleum Reserve to reduce supply disruptions of key
00:46:43pharmaceutical ingredients.
00:46:45However, instead of financing it to maintain nearly two years' worth of supply and incentivizing
00:46:51private industry to incorporate it into a means to wean off of reliance on overseas
00:46:57supply, it's sitting right now in the single digits in capacity.
00:47:01I guess, Mr. Brown, I just want to ask you, are there ways that we can use the DPA to
00:47:06more effectively leverage this reserve to reduce supply chain disruptions and drug shortages
00:47:12in the short term?
00:47:14Yeah, Senator, I think this is an important point of how we can modernize and even look
00:47:20at what we used to use the DPA for, which is for stockpiling and reserves.
00:47:27As you mentioned, the Strategic Petroleum Reserve was also authorized under the DPA.
00:47:32As Congress looks ahead to a possible reauthorization and modernization of the Act, I do think this
00:47:39is one of those subjects that could be relooked at with an eye towards how we handled the
00:47:43Cold War with future 21st century threats in mind.
00:47:47I will also add that, as has been mentioned by my colleague, there is some discussion
00:47:51around the cap that is on the DPA Title III fund.
00:47:56This is, to me, largely an appropriations and budgeting issue.
00:48:02Working closely with the appropriators on this issue is an important initiative.
00:48:09Dr. Doshi, I wanted to just talk about how critical biotech is, for instance, not only
00:48:14for innovation competitiveness, but also for our defense-related products.
00:48:19DOD launched the Distributed Bio-Industrial Manufacturing Program last year, which supports
00:48:25private industry and develops commercial-scale facilities that fortify defense supply chains.
00:48:31This targets high-risk components of the military supply chain that could be alternatively produced
00:48:37through biomanufacturing, such as rocket propellant, jet fuel, et cetera.
00:48:42Without direction from DOD, the private sector will not build commercial-scale biomanufacturing
00:48:48infrastructure for defense-related products.
00:48:51I find this to be an important effort.
00:48:55I guess I just wanted to ask you on this front, can you speak to why DPA funding for this
00:49:01is important and whether the administration and Congress are doing what's necessary to
00:49:06ensure this continues?
00:49:09Thank you, Senator Kim.
00:49:10I'd start by saying that DPA Title III funding has been used, as was referenced earlier in
00:49:15the hearing, to expand industries critical to American national security, including nascent
00:49:20industries that have developed.
00:49:22We used DPA Title III in the past to stand up some of our semiconductor capacity and
00:49:27invest in new, innovative industries.
00:49:29I think the same is true for biotechnology.
00:49:31So I think you could imagine using DPA Title III to build more capacity in this space.
00:49:35The second point I'd make is that many of the inputs in the biotech sector, whether
00:49:40that's animal models or reagents or enzymes or expensive equipment, a lot of that is imported
00:49:45from China today.
00:49:47If there were an escalation in the trade war, you might need DPA Title III, for example,
00:49:52or Title I, in some cases, to be able to ensure that we could expand production of those critical
00:49:57inputs or prioritize contracts for government and national security purposes under Title
00:50:01I.
00:50:02There's a lot of ways in which I think DPA is critical to supporting this sector, which
00:50:05is now a sector at the heart of competition.
00:50:09We talked earlier about challenges when it comes to critical minerals, especially vis-a-vis
00:50:14the PRC.
00:50:15Part of the reason that the PRC commands such a large share of the critical minerals market
00:50:20is that they treat the supply like a faucet.
00:50:22They turn it on.
00:50:23They flood the market with cheap commodities.
00:50:25Once the competitors run out of the market, they can turn the faucet down.
00:50:30Prices stabilize.
00:50:31It's basically utilizing these non-market policies to be able to mobilize.
00:50:37It's something that shows that building new mines is not enough.
00:50:40We need to ensure that they can continue to operate even when the PRC floods the market.
00:50:45Mr. Doshi, can you just give us a little bit of a sense of how we should be using the DPA
00:50:49to counter these particular non-market policies to ensure our investment at home do not go
00:50:54to waste?
00:50:55Senator Kim, I think this is a critical point.
00:50:57We heard a little bit about this in the context of antimony already, which is a very good
00:51:01case study of the PRC restricting a critical mineral and DPA stepping in to ensure adequate
00:51:06capacity.
00:51:07Here's the broader point.
00:51:08Every time we get close to having our own production, our own refining, our own stockpile
00:51:13of these kinds of critical minerals, the PRC drops the price.
00:51:17That's where DPA is going to be needed to prevent market manipulation.
00:51:19Ms. Lyon, do you agree with that?
00:51:21Absolutely, Senator.
00:51:22I just think that that's something, hopefully, again, we can hone in on and just understand
00:51:26and see the different ways it can be used.
00:51:29With that, I'll yield back.
00:51:34Thank you, Senator Kim.
00:51:35Before we hear from Senator Ricketts, I wanted to take this opportunity to say to Rachel
00:51:40Kendall, whose last hearing is today, thank you for your service to the Banking Committee.
00:51:46We will certainly miss you and look forward to your success with the Speaker of the House.
00:51:51I'm not sure why you want to go to the other side of the Capitol, but stranger things have
00:51:56happened, I guess.
00:51:59But you've been amazing, and we really appreciate who you are, what you represent, and your
00:52:04intellectual curiosity and depth has been a powerful tool for all of us to serve the
00:52:09American people, and you will be missed.
00:52:19Senator Ricketts.
00:52:20Well, thank you, Chairman Scott, for holding this hearing.
00:52:27Thank you to all of our witnesses here today to take the time to be able to talk to us
00:52:32about the important issues here with the Defense Production Act.
00:52:36Communist China poses the single greatest threat to our country outside in the international
00:52:44forum.
00:52:45It's a threat to our nation economically, militarily, and we remain too reliant right
00:52:51now on Communist China for essential inputs.
00:52:55We've seen what happens when the CCP decides to weaponize its control over key supply chains,
00:53:01cutting off exports, manipulating markets, and using state-owned enterprises to undercut
00:53:06American producers.
00:53:08This is a vulnerability that we cannot afford.
00:53:10And, Rush, I know you and I have had this conversation many times.
00:53:13I just spoke with Secretary Rubio yesterday in a hearing about what Communist China could
00:53:18do as far as an energy blockade of Taiwan, and we were also then discussing mineral supply
00:53:25chains around the world.
00:53:27If we're serious about winning in this era of strategic competition, then we need to
00:53:31use every tool available to rebuild our domestic capabilities and reduce our reliance on Communist
00:53:36China.
00:53:38So, Ms. Lyon, how much of your company's project's timeline were consumed with federal permitting
00:53:46process, and how does that affect your ability to scale quickly in response to national security
00:53:52needs?
00:53:53Thank you, Senator, for the question.
00:53:55Great question.
00:53:56Overall, what will be our 18-year time frame from identifying these minerals to getting
00:54:02them out of the ground, should everything stay on track?
00:54:05Over nine years, about nine years, was absorbed by the permitting process, which represents
00:54:12about a $400 million investment in total by the company.
00:54:17So about nine years?
00:54:18Yes, sir.
00:54:19Yeah.
00:54:20So, Mr. Doshi, so if there were to be a conflict with China over Taiwan, how long do you think
00:54:26that would last?
00:54:27I mean, just ballpark, I know it's a very hypothetical question, but is it going to
00:54:31last nine years long?
00:54:32Well, Senator, we need to move faster than nine years.
00:54:34Yeah.
00:54:35I'm not sure what my take on it would be, too.
00:54:37Ms. Lyon, do you believe current permitting timelines are compatible with the urgency
00:54:41of reducing our reliance on communist China for critical minerals like cobalt or antimony?
00:54:47No, sir.
00:54:48And just to put it in perspective, well, your time frame, when I was governor of Nebraska,
00:54:54we were trying to raise a levy around, off an Air Force base in STRATCOM.
00:55:00You may know that STRATCOM controls all of our nuclear weapons office air force bases
00:55:03where it's located.
00:55:05The Army Corps took six years to get a permit to raise that levy two feet.
00:55:10I'm guessing that was somewhat less complicated than what you were asking for on your permit.
00:55:16Ms. Lyon, as we look to reauthorize the Defense Production Act, what improvements would you
00:55:22recommend making to streamline the permitting and environmental review timelines for DPA
00:55:28to support project planning?
00:55:29Senator, thank you for the question.
00:55:31I think one of the most important things that we can do is make sure that the left
00:55:34hand of government knows what the right needs.
00:55:37Having the Department of Defense being able to coordinate and work with the permitting
00:55:42agencies to flag projects that are critical for prioritization is absolutely critical.
00:55:48The recent addition of projects to the permitting council I think will absolutely benefit the
00:55:53long-term delivery of critical minerals to this country to provide transparency and accountability
00:56:00into the process to make sure that things are prioritized and stay on track.
00:56:04Okay, great.
00:56:05Dr. McGinn, can you weigh in on that too, please?
00:56:09I think, yes, permitting is a major challenge as you outlined and Ms. Lyon did.
00:56:17I think that would be a critical point of reform that you could get through.
00:56:25You don't need to use the DPA reauthorization to do that, but it is really hindering our
00:56:31ability to build and rebuild critical mineral capacity in the United States.
00:56:38Great, thanks.
00:56:39Well, the DPA is a powerful tool, but like any tool, it could be misused or exploited
00:56:43if it's not properly guarded.
00:56:44It makes little sense for the US to pour federal taxpayer dollars into shoring up our supply
00:56:48chains only to have those funds ultimately benefit our adversaries.
00:56:51Dr. McGinn, how does the DPA currently adequately prevent companies with ownership ties to foreign
00:56:58adversaries from receiving funding or contracts under the Act?
00:57:02Under the Act, your companies that are US-based companies or companies that are based in Canada
00:57:11or the UK or Australia are permitted to compete for Title III projects.
00:57:19They have to, and then under the contracting, the companies have to be domiciled in one
00:57:28of those areas.
00:57:29Okay.
00:57:30Well, since the chairman's not here, I'm going to go ahead.
00:57:32I think I'm the new chairman or are you the chairman now, Rounds?
00:57:34I'm next.
00:57:35You're next.
00:57:36Okay, great.
00:57:37I'm going to go ahead and take a couple extra minutes here then.
00:57:41Dr. McGinn, how rigorous is the foreign entity vetting process in the DPA award pipeline
00:57:48compared to the traditional DOD procurement procedures under the Defense Federal Acquisition
00:57:52Regulation Supplement?
00:57:55It is under the same authority.
00:57:57It's all pretty relative?
00:57:58Yeah.
00:57:59It's all . . .
00:58:00It's correct.
00:58:01It's distinct from a CFIUS, which is for a review of a transaction when they specifically
00:58:07look at ownership, but all the standard DFARS rules that you cite would go for Title III
00:58:14projects.
00:58:15All right.
00:58:16You think it's sufficient as it is?
00:58:17Do you think it's accurate?
00:58:19I haven't seen any evidence to point me that it's not.
00:58:22Mr. Brown, can you weigh in on that too as far as making sure our foreign adversaries
00:58:27don't benefit from our taxpayer dollars?
00:58:28Do we have sufficient safeguards here?
00:58:31Yeah.
00:58:32To Ms. Lyons' point earlier to your questioning about the right hand and the left hand, Congress
00:58:38authorized an entity called the Defense Production Act Committee specifically so that the left
00:58:44hand and the right hand could negotiate and discuss about these issues.
00:58:48That's one of the things that has not taken off like it should have under the executive
00:58:53branch and needs the oomph of Congress in this reauthorization effort to really make
00:58:59sure we have the centralized coordination and discussions going on throughout the interagency
00:59:03about the necessity and use of DPA.
00:59:06Okay.
00:59:07Great.
00:59:08Thank you very much.
00:59:09Mr. Ramos.
00:59:10I was going to say, Ranking Member, have you already asked your questions?
00:59:13I've spoken.
00:59:14Okay.
00:59:15Great.
00:59:18First of all, thank you for the opportunity to visit with all of you today.
00:59:22It is appreciated that you come in and to do this with us.
00:59:27We did a piece of legislation that we proposed called the PASS Act.
00:59:32My question will begin with Dr. McGinn.
00:59:35As you know, there have been numerous reports of suspicious activity by U.S. adversaries
00:59:39in regards to U.S. agricultural land purchases.
00:59:43I appreciate the work CFIUS has done over the last year to expand security review authority
00:59:48over foreign purchases of real estate near American military bases.
00:59:53I believe the recent action to add a net total of 56 facilities across 30 states to the CFIUS
01:00:00review list is an important first step, but I think we're going to probably have to go
01:00:05farther than that.
01:00:07I think it's critical that Congress pass legislation, the PASS Act, that I've introduced with Senator
01:00:12Cortez Masto and many others to curtail agricultural land purchases by our stated foreign adversaries
01:00:22near military bases.
01:00:24So for Dr. McGinn, I want to thank you for your testimony and for your support of this
01:00:29legislation in your testimony.
01:00:33How significant of a national security threat is China?
01:00:39China is our principal national security threat facing us today.
01:00:46Today there are numerous examples where they have tried to gather data or they have looked
01:00:53at setting up facilities near sensitive sites within the United States.
01:01:01That's correct.
01:01:02Senator, I used to oversee CFIUS when I was in the Department of Defense several years
01:01:08ago and there was a big turn in the mid to late 2010s when CFIUS transactions were principally
01:01:17from European-based countries or Japanese-based countries or the like to become, and China
01:01:23started using state-owned enterprises or private companies to do that, conduct transactions.
01:01:32What that led to is Congress acted and established FIRMA, passed the law that modernized CFIUS
01:01:38specifically to address these kind of threats.
01:01:41I will say, I can't talk about specific transactions, but those kind of proximity transactions were
01:01:47really, really closely monitored by the committee and they continue to be so.
01:01:53I would encourage you to talk to the committee about the gaps that they see either in the
01:02:01Department of Defense or Treasury and how your legislation could potentially help the
01:02:06CFIUS authority, but the more that we can strengthen and protect our national defense
01:02:14assets geographically in the United States, the better.
01:02:17Great.
01:02:19I appreciate the support on that legislation.
01:02:21Ms. Lyon, South Dakota and states like mine have mineral resources that could contribute
01:02:26to our national defense and reduce reliance on adversaries like China.
01:02:31Given the permitting challenges and price manipulation you've described, what steps,
01:02:36legislative or administrative, would help make DPA support more effective for companies
01:02:40trying to establish domestic processing capacity?
01:02:45Thank you for the question, Senator.
01:02:48Processing is absolutely the next link in the supply chain that we must be concerned
01:02:53about.
01:02:54It doesn't make sense to take all of this effort to get minerals out of the ground to
01:02:59have to send them to China for processing.
01:03:03Antimony is a really interesting case where China controls about 50% globally.
01:03:08They control 80 to 88% once you include secondary processing.
01:03:14We've got to figure out how to bring not only the mineral production home, but the processing
01:03:18as well.
01:03:19It needs to happen in parallel because we've got a bit of a chicken and egg problem where
01:03:24it's difficult for a new processing facility to be built and put online if it doesn't know
01:03:29it has the minerals coming in the door.
01:03:31At the same time, once the minerals are ready, you can't wait three years for the permitting
01:03:36and development of a processing facility.
01:03:39DPA can absolutely use its authorities to help these things occur in parallel with one
01:03:45another and that requires investment.
01:03:48I think that's one of the most important reasons why we need to move forward with the reauthorization
01:03:53on DPA.
01:03:55With that, on behalf of the chairman, I will recognize Senator Reid.
01:03:59Thank you very much, Senator Rounds.
01:04:01Thank you all for your testimony.
01:04:02Dr. McGinn, the DPA was created to maintain our military and economic strength.
01:04:11In fact, President Trump used it multiple times during the COVID crisis to secure ventilators,
01:04:18masks, and so many other things.
01:04:21Would you agree that the DPA does protect our economic strength and that's parallel
01:04:29with our national security strength too?
01:04:32Senator, great to see you again and thank you very much for your question.
01:04:37The DPA is used for national defense and national emergency situations.
01:04:43COVID definitely qualified in that situation, so it was very effective and used in that
01:04:49kind of way.
01:04:53By those actions, it does help on economic security, but part of the problems overall
01:05:01with DPA, or not a problem, but the reinvestment to bring back capacity, whether that be defense-focused
01:05:08or commercial-focused, because many of these areas like antimony, they have many more commercial
01:05:13uses than defense, but the key is how do we use DPA to help restart the market, but then
01:05:20how does that sustain?
01:05:22Because we can't keep investing taxpayer dollars to prop up industry, so it's beyond the initial
01:05:30investment in whatever is made, how do we make these economically viable capabilities
01:05:37in the United States?
01:05:38Thank you very much and thank you for your service, Dr. McGinn.
01:05:43Dr. Doshi, China is always on everyone's mind at the moment.
01:05:50Can you explain how China in particular, or other adversaries, try to weaken our national
01:05:54security through non-military means and how does DPA act as a counter to that?
01:06:01Thank you very much for the question, Senator Reid.
01:06:03Let me just offer maybe two broad categories.
01:06:05There are many more we could go into, but in the interest of time, one is of course
01:06:08manipulation of markets.
01:06:10The reality is that our free market system is sometimes vulnerable when adversaries pour
01:06:14tons of money in to manipulate prices.
01:06:16All of a sudden, our businesses simply can't compete.
01:06:18They can stay solvent longer than we can, because we're disciplined by the market.
01:06:22That's where DPA comes in.
01:06:23DPA Title III can create capacity, DPA Title VII can create voluntary agreements.
01:06:28Title III can also allow us, as Mr. McGinn mentioned earlier, to basically do purchase
01:06:33commitments or off-take for some of these companies.
01:06:35It allows us to solve some of the market problems that adversaries are able to engineer for
01:06:39us.
01:06:40I think that's why it's essential.
01:06:41Very briefly, a second category we should think a lot more about is cyberattacks on
01:06:44our critical infrastructure.
01:06:45There again, that will trigger effectively a disaster.
01:06:49That kind of disaster will require DPA Title I, III, and VII authorities to solve.
01:06:54I think you're exactly right.
01:06:56Most people assume that the first stage of any future conflict will be cyberattacks,
01:07:02trying to disguise, if they can disguise them, but there'll be cyberattacks requiring us
01:07:07to respond.
01:07:09For the whole panel, beginning with Ms. Line, what are the risks we face if we don't
01:07:16authorize the DPA and extend its life?
01:07:20Thank you for the question.
01:07:22In our case, our military wouldn't have access to the key component that allows 300
01:07:28types of munitions to fire.
01:07:30Our warfighter would be in a situation where they don't know if their base equipment
01:07:36will work.
01:07:37We are completely reliant on our adversary for that material, but for the DPA.
01:07:45Mr. Brown, please.
01:07:47Sir, as I said in my testimony, I genuinely cannot think of any really bad, dark day in
01:07:54American history that doesn't rely on the DPA to respond to.
01:08:00There isn't a scenario that I can genuinely imagine that keeps you up at night as the
01:08:05armed service ranking member about which the DPA wouldn't be used.
01:08:11Without reauthorizing this or at least replacing it with some other similar set of authorities,
01:08:16our catastrophic response plans are gutted.
01:08:20Dr. McGinn, please.
01:08:21I concur 100% with my colleague, Senator.
01:08:24The imperative to reauthorize DPA is very, very strong because we will not be able to
01:08:31effectively respond to ... You saw the role it had during the COVID response.
01:08:38We see the role it's having in rebuilding some capacity, but if we don't have that tool,
01:08:44it makes it much, much more difficult.
01:08:46Doctor, please.
01:08:47Thank you, Senator.
01:08:48Well, we're a long way from the 1950s.
01:08:51The need for DPA is greater today as our industrial capacity has shrunk and the threats we face
01:08:54are greater.
01:08:55We can't reshore.
01:08:56We can't deal with natural disasters.
01:08:57We can't deal with cyber attacks without DPA.
01:09:00Thank you very much.
01:09:01Thank you, Mr. Chairman.
01:09:03And I think an excellent way to close out this hearing.
01:09:06On behalf of the chairman, I would like to thank our witnesses for being here today.
01:09:10Some of you have traveled across the country to get here.
01:09:13You took time from your busy schedules to come and share your testimony with us.
01:09:17We appreciate your perspective on the Defense Production Act, so thank you for your time.
01:09:22For senators who wish to submit questions for the hearing record, those questions are
01:09:26due one week from today, Thursday, June 5th.
01:09:29To our witnesses, you will have 45 days from that day to submit your responses to questions
01:09:34for the record.
01:09:35And with that, thank you to the committee, and the committee is adjourned.