China dominates the rare earth industry, accounting for approximately 60 percent of rare earth metal mining and approximately 90 percent of rare earth metal processing in 2023. In order to combat this near-monopoly and to limit supply chain vulnerabilities and risk to the US defense industry, a final Defense Federal Acquisition Regulation Supplement (DFARS) rule, published May 30, 2024, applies broader sourcing prohibitions to the language of DFARS 225.7018 and operative clause DFARS 252.225-7052 to prohibit the use and acquisition of magnets mined in China as of January 1, 2027.
The challenges associated with Chinese domination of the rare earth mineral market are exemplified by the 2023 export ban of technology required to manufacture rare earth magnets, including samarium-cobalt, neodymium-iron-boron, and cerium magnets. The effect of this export ban is to limit sources of rare earth metals from non-Chinese suppliers, impacting US contractor supply chains.
To combat Chinese omnipresence in this area and to ensure supply chains do not become dependent on other nonaligned countries allied with China, Congress addressed the matter in the 2018 National Defense Authorization Act (NDAA) by prohibiting the acquisition of certain magnets mined in China, North Korea, Iran, and Russia. See 10 U.S.C. 4872. To date, and through the effective date of the regulation, contractors may utilize material for covered magnets mined in these countries. Covered magnets and materials include samarium-cobalt and neodymium-iron-boron magnets, tungsten metal powder, tungsten heavy alloy or any finished or semifinished component containing tungsten heavy alloy, and tantalum metals and alloys. The Department of Defense (DOD) implemented the statutory prohibition at DFARS 225.7018 “Restriction on acquisition of certain magnets, tantalum, and tungsten” and an associated clause at DFARS 252.225-7052.
In 2022, and pursuant to Section 844 of the 2021 NDAA (Pub. L. 116–283), Congress strengthened the prohibition on the acquisition of materials from these countries by modifying 10 U.S.C. 4872 to restrict not just the melting and production of the metals comprising covered materials but also their mining, refining, and separation in covered countries. The 2021 NDAA allowed a delayed implementation of the broader restriction, meaning that through December 31, 2026, contractors are able to source covered magnets mined in China, since the prohibition only applies to “melting and producing” (where “producing” has a specific meaning relative to the nature of the magnet in question). The final DFARS rule, published May 30, 2024, now applies the broader prohibition to the language of DFARS Section 225.7018 and clause 252.225-7052. The recent 2024 NDAA extended the date of enactment by one year, from January 1, 2026, to 2027 in order to provide sufficient time for contractors to find alternate suppliers of covered materials.
While the US and China continue to compete for resources and access to rare earth metal technology, contractors providing covered magnets should conduct a review of their supply chain to ensure that they are able to source covered magnets that are not mined or produced in China or another covered country. While contractors have an extra year prior to the compliance deadline, they should ensure that they are compliant well before 2027.
[View source.]
