	Introduction

This report examines the specialty metal clause in the Defense Federal Acquisition Regulation Supplement (DFARS), potential oversight issues, and options for Congress. The specialty metal clause prohibits DOD from acquiring end units or components for aircraft, missile and space systems, ships, tank and automotive items, weapon systems, or ammunition unless these end items or components have been manufactured with specialty metals that have been melted or produced in the United States. Specialty metals covered by this clause include certain types of cobalt, nickel, steel, titanium and titanium alloys, zirconium, and zirconium base alloys. Thousands of products used for defense, aerospace, automotive, and renewable energy technologies rely on specialty metals for which there are often few, if any, substitutes. In order to preserve and protect the United States industrial base so that it could meet DOD requirements during periods of adversity and war, in 1941 Congress passed a set of domestic source restrictions which became known as the Berry Amendment. In 1973, specialty metals become one of the items covered under the Berry Amendment, a domestic preference law requiring DOD to procure items that are wholly domestic. Over three decades later, specialty metals are no longer part of the Berry Amendment and are now covered in a separate citation in the United States Code (U.S.C.). Congress took action in the FY2007 National Defense Authorization Act ( P.L. 109-364 ) to separate specialty metal from the Berry Amendment (Title 10, U.S.C. 2533a). 110-181 ). The specialty metals clause addresses these concerns: (1) specialty metal from many allied countries is already exempt from the domestic source requirement because of the existence of Memoranda of Understanding (MOU) with the United States, which guarantee that allied suppliers be given equal treatment in DOD procurement; (2) commercial-off-the-shelf (COTS) items are exempt from the specialty metal clause so that suppliers who sell identical commercial and defense articles are exempt from the specialty metal clause; (3) recent changes to the special metals clause allow producers of commercial derivative defense articles and fasteners to treat domestic and foreign specialty metals as fungible materials so that commercial and defense items may be produced on the same production line without the need to trace the source of the metal used in each item. At least seven possible options for policy makers to consider are listed below: (1) eliminate the specialty metal clause; (2) require an assessment of compliance with new exceptions to the specialty metals clause; (3) require a review of waivers issued under the revised specialty metals clause, including requiring DOD to publicly disclose when waivers are granted; (4) require congressional approval before non-compliant specialty metal can be used in certain defense contracts; (5) require a congressional report for each platform/component where non-compliant specialty metals are used in defense contracts; (6) encourage the use of domestic specialty metal; and (7) appoint a special metals protection board. Section 817 would amend 10 U.S.C. P.L. 2012 Report to Congress

The 2012 Annual Industrial Capabilities Report to Congress can be accessed online.
This report examines the specialty metal clause, potential oversight issues, and options for Congress. The specialty metal clause in the Defense Federal Acquisition Regulation Supplement (DFARS) prohibits the Department of Defense (DOD) from acquiring end units or components for aircraft, missile and space systems, ships, tank and automotive items, weapon systems, or ammunition unless these items have been manufactured with specialty metals that have been melted or produced in the United States. Thousands of products used for defense, aerospace, automotive, and renewable energy technologies rely on specialty metals for which there are often few, if any, substitutes. Specialty metals covered by this provision include certain types of cobalt, nickel, steel, titanium and titanium alloys, zirconium, and zirconium base alloys.
In order to preserve and protect the United States industrial base so that it could meet DOD requirements during periods of adversity and war, Congress passed a set of domestic source restrictions which became known as the Berry Amendment. In 1973, specialty metals become one of the items covered under the Berry Amendment. Over three decades later, specialty metals are now covered in a separate citation in the United States Code (U.S.C.). Congress took action in the FY2007 National Defense Authorization Act, P.L. 109-364, to separate specialty metal from the Berry Amendment (Title 10, U.S.C. 2533a).
Specialty metal provisions underwent a substantial revision in P.L. 110-181 as part of Congress's continuing effort to create a procurement environment that promotes efficiency in the DOD acquisition process, while insuring that the United States has a vigorous domestic metals industry capable of meeting defense needs. The revised specialty metal clause made clear the requirement that specific defense articles must be produced using domestic specialty metals; made exemptions for commercial-off-the-shelf (COTS) articles, electronic articles, and articles containing small amounts of non-compliant specialty metals; and allowed producers of commercially derivative defense articles to treat domestic and foreign specialty metals as fungible materials so that commercial and defense articles may be produced on the same production line without the need to trace the small amounts of metal used in each article. These changes reflected a view in Congress that there are differing rationales for offering domestic source provisions, and that these refinements would promote efficiencies throughout the defense supply chain.
In October 2013, DOD released its Annual Industrial Capabilities Report to Congress in accordance with Section 2504 of Title 10, United States Code (U.S.C.). The report states that, due to global market forces, the overall demand for rare earth materials has decreased, as prices for most rare earth oxides and metals have declined since 2011.
There are at least seven possible options for policy makers to consider: (1) eliminate the specialty metal clause; (2) require an assessment of compliance with new exceptions to the specialty metals clause; (3) require a review of waivers issued under the revised specialty metals clause, including requiring DOD to publicly disclose when waivers are granted; (4) require congressional approval before non-compliant specialty metal can be used in certain defense contracts; (5) require a congressional report for each platform/component where non-compliant specialty metals are used in defense contracts; (6) encourage the use of domestic specialty metal; and (7) appoint a special metals protection board.