Negotiators pressured to resolve 'Buy America' dispute

House and Senate negotiators on the fiscal 2007 defense authorization bill hope to file the final conference report Thursday, leaving only a couple of days to resolve a high-stakes battle over regulatory provisions that could have dramatic financial repercussions for the aerospace and electronics industries.

After meeting privately for more than a month, the Republican and Democratic leaders of the House and Senate Armed Services Committees have been unable to reach a compromise on whether defense manufacturers can buy certain specialty metals, including titanium and zirconium, from foreign suppliers.

The larger issue of buying defense components abroad is a perennial one during defense authorization conferences, with strict "Buy America" provisions championed by House Armed Services Chairman Duncan Hunter, R-Calif., typically argued but ultimately dropped from the final conference report on the annual authorization bill.

But this year, the Pentagon has added a sense of urgency to the negotiations because it is beginning to crack down on a largely ignored law that requires the content of specialty metals be 100 percent domestically produced.

Indeed, the Pentagon distributed a memo last month declaring that the military services and defense agencies must take the law, a 1941 domestic-source law known as the Berry Amendment, into account before issuing a contract award. The memo went out despite defense officials' past indifference toward industry infractions involving minor equipment parts like engine and electronic components.

Now, a White House veto threat hangs over any defense authorization bill that contains the House provisions. And big firms, such as Intel Corp. and Texas Instruments Inc., as well as the nation's leading aerospace companies, say strict enforcement of the law would be both difficult and costly.

In their bill, House lawmakers stipulate that the defense industry must rely exclusively on domestic suppliers for parts and components. They also leave open the possibility of expanding the list of protected specialty metals by establishing a Strategic Materials Review Board, which could add materials to the list.

The Senate supports weaker language favored by aerospace and electronics firms that would provide exemptions for certain lower-cost commercial items, such as electronic components, from the Berry Amendment. Suppliers of such commercial components as circuit boards, which may have only a small amount of a specialty metal, have argued that tracking the sources of specialty metals might drive up the cost of their products.

"This is really important," said Trey Hodgkins, director of defense programs at the Information Technology Association of America, whose members include Intel and Texas Instruments. "We are not going to be able to properly supply the warfighter if this is not addressed this year."

The domestic titanium industry, a key supporter of the House language, also is waiting for the outcome of the debate, which could affect about one-quarter of its sales.

"Titanium producers have made pretty significant compromises to meet the demands by both the House and the Senate," said Ray Calamaro, a partner at Hogan & Hartson, who lobbies for RTI International Metals, one of three domestic titanium producers.

The titanium industry says it is open to certain compromises, including allowing some exemptions to soften the impact of the Berry Amendment. It also supports a "get-well period" to give some breathing room to defense and electronics manufacturers that have non-compliant material in their parts.

Conferees will aim to complete negotiations this week. The House could vote on the conference report as early as Friday.

Other areas of discord between the two chambers include a fight over TRICARE healthcare pharmacy co-payments and Senate provisions on acquisition reform, aides said.

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