Pentagon 'buy American' provisions moderated, backers say

Critics of a compromise negotiated between House Armed Services Committee Chairman Duncan Hunter, Callif., and Deputy Defense Secretary Paul Wolfowitz on controversial legislation that would restrict foreign content in U.S. weapons systems say the draft language would harm U.S. defense trade ties and degrade military readiness.

But supporters of the compromise insist the teeth have been removed from Hunter's original legislation, included in the House version of the fiscal 2004 defense authorization bill. What remains, they contend, is an effort to curb unnecessary offshore sourcing of critical defense technologies and to gather information to enable the military to better understand the long-term impact of shipping U.S. defense manufacturing overseas.

The compromise legislation, negotiated in September and described to senior Cabinet officials over the past two weeks, bucks two key trends in the global defense market, according to critics: increased reliance on commercial technology and production of this technology all over the world.

"Information technology systems, their components or parts of those components, are now manufactured in Taiwan or in Malaysia or elsewhere," said former Rep. Dave McCurdy, R-Okla., president of the Electronic Industries Alliance. "And the idea that we can reverse these trends will come at an extremely high cost and with very little return for U.S. defense."

But while the Hunter-Wolfowitz compromise continues to draw fire from free-trade proponents, those who back the revised provisions say they are less onerous than those in the original bill.

Sections that called for assessment of U.S. defense industrial base capabilities could have imposed costly burdens on contractors required to gather and compile information on the sources and costs of domestic and foreign components. But these provisions were changed to require the Pentagon to compile this information, using only existing data from prime contracts, in an effort to highlight how much foreign content is incorporated into U.S. weapons systems, according to a House Armed Services Committee staff member familiar with the issue.

The intent, the staff member told CongressDaily, is to identify and measure trends in domestic and foreign supply chains resulting from sole-source and foreign supply of essential components, and make informed policy decisions, the staff member said.

One controversial provision in the compromise calls for the Pentagon to procure specific, essential military items from domestic sources. Critics of the language say the provision could bolster sole-source domestic suppliers and ultimately edge out foreign producers.

But the provision includes degrees of exclusion that allow countries party to pre-existing agreements with the United States, such as memoranda of understanding, to be exempt from the domestic source requirement. However, if a company in an MOU country needs to subcontract a portion of a U.S. defense contract to a non-MOU country, the Defense secretary would be required to grant a waiver for the transaction.

Another section on domestic source limitations would expand the list in current law of goods that must be produced in the United States. It also redefines the National Technology Industrial Base to require companies or other entities that contract for such items to conduct research, development and production domestically.

The change was made in an effort to retain engineering and technical expertise associated with certain critical technologies, the House staff member said, but it leaves intact a series of waivers that may be applied to circumvent the legislation.

Critics say the change could overwhelm the Defense secretary with new waiver requests. But proponents say it only applies to small and specific areas, to avoid the loss of any indigenous capability.

The procurement of specialty metals is another controversial provision in the language, although supporters say it would loosen current restrictions on such commodities. Although the language prohibits the Pentagon from buying specialty metals not produced in the United States, this restriction may be waived, as long as the contractor agrees to purchase 110 percent of the same type of American-made metals for other products over the course of the contract.

"It simply says that if you want to use the exemption, you have to commit to buying an equivalent amount plus 10 percent in the rest of your product lines," the staff member said. "This way, you don't need to waiver all the tiny pieces in it-you account for them once and you're done, giving DoD more flexibility, not less."

Another provision requires the Defense secretary to create a list of countries that restrict the sale of defense material to the United States on the basis on U.S. foreign and defense policy. Although the original legislation tied this to countries opposed to the U.S.-led war against Iraq, the compromise amended the language to allow the Defense secretary to include only countries that actively restrict the sale of such goods.

It also allows for a 24-month implementation period, providing latitude to avoid damaging military readiness, the staff member said.

The use of machine tools produced in the United States is one of the most controversial provisions in the House bill. Some industry critics say the language could force U.S. manufacturers to incur higher costs, and the provision does little to enhance any U.S. competitive edge in the global marketplace. But proponents say it levels the playing field and puts the ball back in the U.S. court, in terms of producing products used by U.S. companies.

"It's a simple way of giving that industry a shot at survival, while not costing the taxpayers or disadvantaging businesses," the staff member said.