Defense contractors gear up to fight foreign metals ban

A high-stakes battle affecting the fortunes of the defense and electronics industries will intensify later this month when the House and Senate Armed Services committee negotiators begin conference talks on the fiscal 2007 defense authorization bill.

At issue is whether defense manufacturers can buy certain metals, such as titanium and zirconium, from foreign contractors, or if they must rely solely on domestic suppliers for the in-demand products.

Worried industry trade groups, whose member companies have long been able to circumvent a law requiring the content of specialty metals be 100 percent domestically produced, have been gearing up lobbying campaigns aimed at ensuring any conference agreement will not change the status quo.

Their activism has been prompted partly by the Defense Department, which began stepping up enforcement of the law in the last year despite past indifference toward industry infractions involving minor equipment parts.

The White House has threatened to veto a defense authorization bill that contains language now in the House version, which administration officials argue would strengthen the 1973 domestic-source law known as the Berry Amendment.

The House provisions also leave open the possibility of expanding the list of protected specialty metals by establishing a Strategic Materials Review Board in the Pentagon, which would be able to add materials to the list.

But the House insists its provision merely clarifies and enforces existing law and would not adversely affect the military. "The House is committed to protecting our industrial base and identifying and protecting those items critical to national security," a House committee aide told CongressDaily.

The Senate inserted language in its version of the bill that would exempt certain commercial items, including electronics, from the law. In many cases, the amount of metal used is "so small it would be ridiculous" to follow the letter of the Berry Amendment, a Senate aide said. "I do believe that there are some aviation assets that are not being accepted because there is a [foreign] part in an engine that is insignificant [to] the cost of the engine."

John Douglass, president of the Aerospace Industries Association, said the original law and the House language are not workable for his industry, which relies on specialty metals for everything from engine parts to computer chips.

In the past, the administration "didn't double check to see where every atom of specialty metals came from," Douglass said. "There was sort of a de facto de minimis rule that nobody looked into."

Meanwhile, the Information Technology Association of America is concerned that its member companies -- including Intel Corp. of Santa Clara, Calif., and Dallas-based Texas Instruments, Inc. -- have little incentive to comply with the law. Creating separate chips with no foreign content for military use would be a costly endeavor, and not likely worthwhile for a massive industry for which the Defense Department is not the biggest customer.

The association supports providing protections for domestic companies where "tons of titanium are involved," said Trey Hodgkins, ITAA director of defense programs. But "when it's trace amounts in electronics," enforcing the law makes little sense, he said.

Despite their concerns, the affected industries have not provided lawmakers with an estimate on what the House language ultimately would cost other than to say "the answer is a big number," the House aide observed. But this aide stressed that the House language would give industries a year-long grace period to comply with the law.

The committee's goal is "ensuring we have access to materials in the future," the aide said. "That doesn't seem like hardline protectionism to me."