[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
MISSION CRITICAL: RESTORING NATIONAL
SECURITY AS THE FOCUS OF DEFENSE
PRODUCTION ACT REAUTHORIZATION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY,
ILLICIT FINANCE, AND
INTERNATIONAL FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
MARCH 12, 2024
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-80
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
_______
U.S. GOVERNMENT PUBLISHING OFFICE
56-350 PDF WASHINGTON : 2024
HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking
PETE SESSIONS, Texas Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
FRENCH HILL, Arkansas, Vice EMANUEL CLEAVER, Missouri
Chairman JIM A. HIMES, Connecticut
TOM EMMER, Minnesota BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia JUAN VARGAS, California
WARREN DAVIDSON, Ohio JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
ANDREW GARBARINO, New York SYLVIA GARCIA, Texas
YOUNG KIM, California NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee
Matt Hoffmann, Staff Director
Subcommittee on National Security, Illicit Finance,
and International Financial Institutions
BLAINE LUETKEMEYER, Missouri, Chairman
ANDY BARR, Kentucky JOYCE BEATTY, Ohio, Ranking Member
ROGER WILLIAMS, Texas VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia WILEY NICKEL, North Carolina
DAN MEUSER, Pennsylvania BRITTANY PETTERSEN, Colorado
YOUNG KIM, California, Vice BILL FOSTER, Illinois
Chairwoman JUAN VARGAS, California
ZACH NUNN, Iowa JOSH GOTTHEIMER, New Jersey
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee
C O N T E N T S
----------
Page
Hearing held on:
March 12, 2024............................................... 1
Appendix:
March 12, 2024............................................... 27
WITNESSES
Tuesday, March 12, 2024
Nadaner, Jeffrey, Senior Vice President, Govini; and former
Assistant Secretary of Defense for Industrial Policy........... 4
Nicastro, Luke A., Analyst in U.S. Defense Infrastructure Policy,
Congressional Research Service (CRS)........................... 6
Tucker, Todd N., Director, Industrial Policy and Trade, Roosevelt
Institute...................................................... 9
Zakheim, Roger, Director, Ronald Reagan Institute................ 8
APPENDIX
Prepared statements:
Nadaner, Jeffrey............................................. 28
Nicastro, Luke A............................................. 33
Tucker, Todd N............................................... 47
Zakheim, Roger............................................... 53
Additional Material Submitted for the Record
Luetkemeyer, Hon. Blaine:
Written statement of the Americans for Prosperity (AFP)
Foundation................................................. 67
Waters, Hon. Maxine:
Written statement of the Baroni Center for Government
Contracting, George Mason University (GMU) Costello College
of Business................................................ 69
Nadaner, Jeffrey:
Written responses to questions for the record from
Representative Ogles....................................... 80
Written responses to questions for the record from
Representative Waters...................................... 82
Nicastro, Luke A.:
Written responses to questions for the record from
Representative Ogles....................................... 85
Written responses to questions for the record from
Representative Waters...................................... 87
Tucker, Todd N.:
Written responses to questions for the record from
Representative Waters...................................... 90
Zakheim, Roger:
Written responses to questions for the record from
Representative Waters...................................... 95
MISSION CRITICAL: RESTORING NATIONAL
SECURITY AS THE FOCUS OF DEFENSE
PRODUCTION ACT REAUTHORIZATION
----------
Tuesday, March 12, 2024
U.S. House of Representatives,
Subcommittee on National Security,
Illicit Finance, and
International Financial Institutions,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:03 a.m., in
room 2128, Rayburn House Office Building, Hon. Blaine
Luetkemeyer [chairman of the subcommittee] presiding.
Members present: Representatives Luetkemeyer, Barr, Meuser,
Kim, Nunn, Ogles; Beatty, Gonzalez, Nickel, Foster, Vargas, and
Gottheimer.
Ex officio present: Representative Waters.
Chairman Luetkemeyer. The Subcommittee on National
Security, Illicit Finance, and International Financial
Institutions will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Today's hearing is entitled, ``Mission Critical: Restoring
National Security as the Focus of Defense Production Act
Reauthorization.''
I now recognize myself for 5 minutes to give an opening
statement.
In response to the outbreak of the Korean War in 1950, my
fellow Missourian, President Harry Truman, signed a law
intended to ensure that our nation would have sufficient
industrial resources to meet our national security needs. Among
the key authorities that the Defense Production Act, or DPA,
gave the President was the authority to prioritize the
production and delivery of items critical to our national
security.
It also provided a series of financial tools to incentivize
the creation or growth of our domestic capacity, and to
manufacture those items, particularly those that otherwise
might not be made in the United States, and it now forms the
basis for the Committee on Foreign Investment in the United
States (CFIUS) to ensure that foreign adversaries aren't able
to use the fruits of our free market innovation against the
United States.
For almost three-quarters of a century, the DPA smoothly
and quietly functioned with annual appropriations for
industrial incentives generally in the range of $50 million,
modest by Department of Defense (DOD) standards today. This
committee checked in on DPA from time to time in recent years,
mostly focused on CFIUS. The last time this committee held a
general hearing on DPA was more than a decade ago, in May of
2013.
I decided to call today's hearing because over the past few
years, the Federal Government has rapidly increased its use of
DPA's financial tools to address a variety of challenges. For
example, in March 2020, Congress appropriated $1 billion to the
DPA account through the Coronavirus Aid, Relief, and Economic
Security (CARES) Act, to prevent, prepare for, and respond to
the coronavirus.
Then, in 2022, Congress appropriated another roughly $1.25
billion to DPA, $750 million of which went in the Ukraine
supplemental for weapons production, and another $500 million
in the Inflation Reduction Act, half for domestic mining and
mineral processing, and half for clean energy programs.
Over the last 6-plus years, the White House has also
referenced DPA in a series of Executive Orders and other
actions, beginning with former President Trump's prescient 2017
order for the Defense Department to analyze our defense and
manufacturing industrial base and assess supply chains for
their resilience to potential shocks. DOD's recommendation in a
subsequent report to rely on DPA Title III arguably kicked off
a DPA revival.
A few short years later, in 2020, COVID delivered a
dramatic shock to our supply chains, and then-President Trump,
in addition to deploying funds through Title III, invoked DPA
Title I so that the Department of Health and Human Services
(HHS) could prioritize contracts for health and medical
resources, such as personal protective equipment. HHS also used
DPA to prioritize the production of ventilators, which were
badly needed and in short supply at that time.
While taking the oath, President Biden also embraced DPA,
beginning with one of his earliest Executive Orders to
strengthen the U.S. supply chain's resilience. In May of 2022,
President Biden invoked the DPA to require suppliers to provide
key inputs to infant formula manufacturers before any other
customers.
A month later, he again leaned on DPA, this time to
accelerate domestic production of energy technologies,
including solar panel parts, insulation, heat pumps, biofuels,
and power grid infrastructure.
Finally, last fall, the Biden Administration deployed DPA
twice more: first, to foster investment in domestic
manufacturing of essential medicines; and second, and more
controversially, to compel private companies to provide
information to the government about their work on artificial
intelligence (AI).
The level of support for these various applications of DPA
has varied across party lines, and we welcome that debate. But
I hope we can all agree as a starting point that the United
States must have a strong defense industrial base, if only to
ensure success in our global competition with China. This is a
fundamental rationale for the DPA today.
The DPA has generally been reauthorized in 5-year
increments, and the current reauthorization expires at the end
of Fiscal Year 2025, about 18 months from now. In previous
renewals, Congress stripped out provisions that were no longer
relevant and added new provisions to address contemporary
challenges. In my view, our current situation requires that the
DPA, as job one, deploy its limited resources to ensure that
the United States has the industrial capacity to defend our
nation against the generational challenge posed by China.
Today, our panel of witnesses will help the committee
identify appropriate solutions that Congress could implement in
the next reauthorization by discussing the history and
mechanics of that DPA, how it has been deployed, and how it can
be focused, modernized, and improved.
With that, the Chair now recognizes the ranking member of
the subcommittee, the gentlewoman from Ohio, Mrs. Beatty, for 4
minutes for an opening statement.
Mrs. Beatty. Thank you, Mr. Chairman, and thank you for
holding this hearing. And good morning to our witnesses,
The Defense Production Act is what we are here to discuss
today, as you have heard from our chairman. This is our first
dedicated DPA hearing in over a decade. The DPA, which many may
be surprised to learn is under the jurisdiction of the House
Financial Services Committee, this committee, gives the
President the authority to take various actions to ensure the
supply of materials and services necessary for national
defense. The powers granted to the Executive Branch under the
DPA are not to be taken lightly. They enable the President to
prioritize government contracts, waive international trade
requirements, and offer incentives within the domestic market
to enhance the production of critical materials and
technologies if deemed necessary for national defense.
Since the law's inception during the Korean War, Congress
has amended the definition of, ``national defense,'' to include
emergency preparedness, critical infrastructure protection and
restoration, homeland security, and certainly much more. Given
these broad powers, we must take a prudent approach to DPA
application as we consider widening the lens through which we
look at national security in a rapidly-evolving world.
To be clear, national defense looks different today than it
did 70 years ago. Today, it means being energy-independent and
client-resilient, fortifying our supply chains, supporting our
allies abroad, and bolstering United States' competition.
In recent years, the Executive Branch has appropriately
used the DPA to address crises outside of the traditional
national defense. During the horrific COVID-19 pandemic,
invocation of the DPA quite literally saved lives by
facilitating the production of ventilators, respirators,
vaccinations, and coronavirus tests to help Americans weather
the storm.
With the increase in frequency of extreme weather events
that cost us billions of dollars in damage and results in
thousands of deaths per year, there is no doubt that climate
change is a national security risk. Accordingly, President
Biden justifiably issued presidential determinations, and
certainly we have heard the list of things that President Biden
used it for, as stated by our chairman. Accordingly, President
Biden also used presidential determinations to accelerate
domestic manufacturing of clean energy technologies. As we look
ahead to what the next crisis might be, whether it is climate
change, a pandemic, or war, we must continue to use DPA wisely
and reinforce our readiness to tackle major challenges.
During the Korean War, American industry turned on a dime
to ensure that we would win the war effort, and we did it again
in the 21st Century to combat the horrific virus that took more
than 1.1 million American lives. United States' competitors are
looking ahead at the challenges of the future. We must do the
same, leveraging tools like the DPA to boost U.S. strength and
stability. As we prepare to reauthorize this essential
legislation in the coming year, I look forward to working with
my Republican colleagues once again on this historical
bipartisan effort. And again, I would like to thank our
witnesses for being here, and I look forward to your testimony.
I yield back.
Chairman Luetkemeyer. Very good. Thank you for that, Mrs.
Beatty.
Today, we welcome the testimony of our four witnesses, Mr.
Luke Nicastro, Dr. Jeffrey Nadaner, Mr. Roger Zakheim, and Dr.
Todd Tucker. We thank each of you for taking the time to be
here. You will each be recognized for 5 minutes to give an oral
presentation of your testimony. And without objection, each of
your written statements will be made a part of the record.
This is a little housekeeping note. The gentleman on the
end is transcribing all that takes place today, so sometimes,
the microphones need to be pulled very close to you. They are
pretty good. They have improved them in the meetings since I
have been hearing them over the years, but those boxes in front
of you do move forward. If you would just pull them toward you
so that you get close to it, straighten out the microphone to
make sure you can almost take a bite out of it so the gentleman
can hear what is being said and be able to transcribe that,
okay?
Other than that, you each will have 5 minutes. Whenever you
see the little yellow button go on your screen there on your
box, that means you have a minute to wrap up. When it hits red,
I have the gavel.
With that, Mr. Nadaner, you are now recognized for 5
minutes for your oral remarks.
STATEMENT OF JEFFREY NADANER, SENIOR VICE PRESIDENT, GOVINI;
AND FORMER ASSISTANT SECRETARY OF DEFENSE FOR INDUSTRIAL POLICY
Mr. Nadaner. Thank you, Chairman Luetkemeyer, Ranking
Member Beatty, and members of the subcommittee. I testify
before you today in firm support of the reauthorization of the
Defense Production Act, contingent on certain revisions and
reforms.
The DPA, as you know, confers upon the President
authorities to shape the domestic industrial base so that when
called upon, it can provide essential materials and goods
needed for the national defense. Through more than 50
authorizations, Congress has expanded that definition to
include domestic preparedness in response to natural hazards,
terrorist attacks, and even to encompass renewable energy
sources such as solar, geothermal, wind, and biomass. This
promiscuous growth in the definition of national defense is a
concern I share.
Nonetheless, as I saw firsthand as Assistant Secretary of
Defense, the DPA, if properly employed, remains an important
tool to fill gaps in supply chains. And those gaps can stop the
production of crucial military systems, they can fix weaknesses
in defense infrastructure, and they can mobilize the country in
the face of a broader national crisis as was the case with
COVID-19.
Now, the broader global risk context is essential. The
correlation of military and economic force is deteriorating for
the United States of America around the world. Look at the
return of industrial scale land warfare in Europe, look at
Iran's proxy offenses across the Middle East, and, most of all,
look at an aggressive China, which has a defense and
manufacturing industrial base that dwarfs our own.
Indeed, the emerging China threat is on par with the Axis
during World War II and the Soviet Union thereafter, and
America confronts these challenges with a defense industrial
base that is much withered and denuded since the Cold War. So
with this fragile industrial infrastructure, it is all the more
necessary to have special rapid authorities at the ready when
an acute need arrives for scarce parts and materials.
The most compelling and pure use of this authority in
recent memory came in the summer of 2007 when Secretary of
Defense, Robert Gates, invoked the DPA to secure supplies for
reinforced steel to build mine resistant ambush protected
vehicles (MRAPs) to blunt the improvised explosive devices
(IEDs) that were killing our troops daily in Iraq.
And today, we are focused on DPA Title III awards. These
awards can support military supply chains, national defense
mobilization, and critical civil infrastructure. These
categories could encompass shipyards' materials, mineral
refining, large water pumps, electrical generators, wiring, and
agricultural equipment, as well as transportation and computing
infrastructure.
Having worked at senior executive levels at the Defense
Department and in industry, I hold that the DPA should be
reauthorized to focus more effectively on national defense and
indispensable public systems that enjoy uncontroversial,
widespread, bipartisan support. A reformed authority would make
the DPA a ready tool to: first, rescue and fix the very serious
gaps in America's defense industrial base and buttress the
related commercial supply chains; and second, enable a defense
mobilization, provided that the Congress and a future President
determines one is necessary.
The U.S. defense industrial base cannot be relied on to
meet the nation's needs today. DPA Title III could provide a
crucial part in reviving that base, and we are going to need
significantly more output if the international situation
continues to deteriorate in defense supplies like ships,
autonomous vehicles, aircraft, and most of all, longer-range
munitions. The skillful and systematic use of DPA could fill
these holes and, I wish to stress, enable the entry of new
defense tech companies, which, as we have seen with space
launches and drones enabled by artificial intelligence, can do
things more quickly and cheaply and with more competition given
the proper opportunity and incentives.
The country should have the option, as Congress and
Franklin D. Roosevelt (FDR) created before World War II, to tap
commercial entrepreneurs to bring innovation, competition, and
economies of scale to military production, and here, the key
word is, ``before.''
As you will note in my prepared statement, I propose seven
reforms to the DPA, including more expanded use of loans and
how that can happen, and also the kind of expertise and the
executive agent relationships that the DPA office will need. I
would also note that DPA Title III could benefit from Fixing
America's Surface Transportation Act Title 41 (FAST-41)
authorities for permitting. It is no good to get a DPA grant if
one does not get the permitting and cannot train the workforce
to make that happen.
With that, I hope that the Congress will reauthorize the
DPA and do it now so it is at the ready should the nation need
it. Thank you.
[The prepared statement of Dr. Nadaner can be found on page
28 of the appendix.]
Chairman Luetkemeyer. Thank you, Dr. Nadaner. I forgot to
introduce each one of you with regards to your backgrounds. Dr.
Nadaner is a former Assistant Secretary of Defense for
Industrial Policy, and is currently Senior Vice President of
Government Affairs at Govini.
Mr. Nicastro is next up, and Mr. Nicastro is an Analyst in
U.S. Defense Infrastructure Policy at the Congressional
Research Service. Sir, you are recognized for 5 minutes.
STATEMENT OF LUKE A. NICASTRO, ANALYST IN U.S. DEFENSE
INFRASTRUCTURE POLICY, CONGRESSIONAL RESEARCH SERVICE (CRS)
Mr. Nicastro. Thank you, Chairman Luetkemeyer, Ranking
Member Beatty, and members of the subcommittee. Thank you for
inviting the Congressional Research Service to testify today.
This morning, I will summarize my written statement on the
Defense Production Act of 1950, or DPA, starting with a brief
overview of the statute itself, followed by a sketch of its
historical development and recent uses. I will conclude by
offering a few issues facing Congress.
The DPA provides the President with an array of authorities
to, ``shape national defense preparedness programs and maintain
and enhance the domestic industrial base.'' Over the past 74
years, successive Administrations have used the DPA as a tool
to manage the nation's defense-related productive capacity,
invoking its authorities to increase the domestic supply of
goods and materials.
These authorities are grouped into titles, of which three
are extant today: Title I, which allows the President to
require industry to accept and prioritize contracts and orders
to promote the national defense; Title III, which allows the
President to provide loan guarantees, loans, purchase
commitments, grants, and other financial assistance to
businesses to expand productive capacity and supply; and Title
VII, which provides the President with a variety of
authorities, including the power to obtain information from
businesses, form agreements with industry, and block certain
corporate transactions. Title VII also defines key terms,
notably, ``national defense,'' and provides for the Act's
termination.
The DPA was originally enacted in 1950 at the beginning of
the Korean War. In addition to the three current titles, it
included four addressing broader management of the economy,
that have since lapsed. From its inception, the DPA has
contained a sunset clause requiring periodic reauthorization to
retain effect. Congress has reauthorized the Act dozens of
times and has also amended many of its provisions. Some of
these amendments have broadened the definition of, ``national
defense,'' and thus, the purposes for which the DPA may be used
expanded who is eligible for Title III assistance, and changed
how Title III activities are funded. Congress has also altered
reporting requirements and used Title VII to codify other
industrial-base-related authorities.
The Executive Branch's use of the DPA has also changed.
After extensive application during the Korean War, for
instance, employment of Title III declined, reaching a nadir
between the late 1960s and early 1980s, before rising again
starting in 1985. The use of Title I has been more consistent,
although the contracts it supports have varied. In terms of its
authorities, Title VII has historically been the least-used
title.
The number, variety, and value of DPA activities increased
dramatically beginning in 2020. This was initially driven by
the use of its authorities, particularly Title I and Title III,
by the Trump and Biden Administrations to support COVID-19
response efforts, including through prioritizing pandemic-
related contracts and expanding production of vaccines and
medical supplies. However, since 2020, the Biden Administration
has also used the DPA for policy priorities, such as increasing
production capacity to support Ukraine and strengthening clean
energy supply chains.
Turning now to the role of Congress, I wanted to highlight
three potential issues this committee may face. First, Congress
pays for DPA activities. It does this mainly by making
appropriations to the DPA Fund, which pays for Title III
projects. Since 2020, Congress has provided approximately $3.1
billion for the DPA Fund, along with $10 billion made available
for COVID-related DPA uses outside of the structure of this
Fund. Congress may consider what level of funding is
appropriate for DPA activities and whether or not to change how
it provides this funding.
Second, Congress oversees the President's use of DPA
authorities and funds. If Congress assesses that these are not
being used in appropriate or effective ways, Congress has a
variety of options, including developing and considering
legislative provisions to, for instance, direct the use of the
DPA for certain purposes or to modify notification or
authorization requirements. Congress may also consider whether
or not to amend provisions of the DPA itself to change how the
President may use its authorities.
Third, and finally, most of the DPA's provisions will
expire on September 30, 2025, unless they are reauthorized.
Historically, reauthorization has supplied Congress with an
occasion to consider other changes. So, Congress may assess the
overall efficacy of the statute as currently written,
particularly its alignment with the requirements of great power
competition and national strategy, and consider whether or not
to make changes.
This concludes my remarks. Thank you for the opportunity to
testify, and I look forward to your questions.
[The prepared statement of Mr. Nicastro can be found on
page 33 of the appendix.]
Chairman Luetkemeyer. Thank you, Mr. Nicastro. We now go to
Mr. Zakheim. He is the Washington Director of the Ronald Reagan
Presidential Foundation Institute. Mr. Zakheim, you are
recognized for 5 minutes. Thank you.
STATEMENT OF ROGER ZAKHEIM, DIRECTOR, RONALD REAGAN INSTITUTE
Mr. Zakheim. Chairman Luetkemeyer, Ranking Member Beatty,
and distinguished members of the subcommittee, thank you for
inviting me today to testify on restoring national security as
the focus of the Defense Production Act.
As this committee considers the 54th reauthorization of the
DPA, it is prudent to consider that the United States faces the
most dangerous international security environment since 1980,
at a time where the U.S. military has lost or is losing its
military superiority over our adversaries, and during a moment
where the size of the force is declining with every passing
year.
Perennial continuing resolutions and flat or declining
budgets have left the Pentagon unable to maintain its defense
program, let alone grow the force to meet its national defense
commitments. These factors, plus persistent combat and
peacetime operations, have resulted in a military that has not
been able to recapitalize its industrial base since the Reagan
Administration held office.
During the same period, China has engaged in the largest
military buildup since the Soviet Union in the 1960s. A few
data points. Just this week, we learned China has increased its
defense budget by 7.2 percent, continuing a 20-year run of
continuous growth. China has the largest navy in the world. And
most relevant to the DPA, China's shipbuilding industry fields
232 times the shipbuilding capacity of the United States.
These realities make this the most consequential
reauthorization of the DPA since its enactment in 1950. As was
mentioned, the wars in Ukraine and the Middle East have
revealed that the United States may not be able to restore
deterrence or, if necessary, prevail in a protracted conflict,
absent a concerted effort to increase America's defense
production. As Under Secretary of Defense, William LaPlante,
recently said, ``Production itself is deterrence.''
While a full inventory of the military's capacity
shortfalls is beyond the scope of this testimony, three areas
of urgent need are the following: one, munition and weapons;
two, naval shipbuilding and maintenance; and three, supply
chains and strategic materials shortfalls. My written testimony
outlines the scope of the challenge in each of these categories
and ways the DPA can help. The objective in all of these cases
should be investment in extra capacity, stockpiling inventory,
funding emerging technologies, and last, of course, expanding
domestic production.
In recent years, the DPA has drifted from its original
focus on national defense to addressing nondefense national
emergencies. While the use of the DPA for a national emergency
like COVID-19 proved essential, it should be the exception and
not the rule. The DPA, as originally enacted, defines national
defense as the operations and activities of the armed forces
that are, ``substantially concerned with the national
defense.'' It is essential that we return to the national
defense definition as originally enacted with an annual
appropriation supporting DPA projects via grants and loan
guarantees.
We must remember that capital invested in the DPA offers
the taxpayer a trifecta: it helps the economy; it helps the
American worker; and it strengthens our military. As this
committee embarks on reauthorizing the DPA, it should consider
upgrading the authority to address four essential elements of
the defense production value chain: one, capital loan
guarantees to drive increased production capacity; two,
incentives to build and sustain the defense industrial base
workforce; three, fast track permitting, as was mentioned, for
DPA-supported projects; and four, supporting and sustaining
single points of failure in the defense industrial base supply
chain. Without a conservative focus across these four lines of
effort, use of the DPA authority will produce suboptimal or
uneven outcomes, risking failure.
The United States should take advantage of this moment and
recapitalize our military and expand America's industrial
capacity. This would help build a military that can restore
deterrence, uphold the peace, and avoid the wartime
mobilization that the DPA was originally designed to address.
It is time to put the, ``D,'' back in the DPA, and to re-
dedicate its funding and unique authorities to national defense
priorities that catalyze defense production for the 21st
Century. Thank you, Mr. Chairman.
[The prepared statement of Mr. Zakheim can be found on page
53 of the appendix.]
Chairman Luetkemeyer. Thank you, Mr. Zakheim. Dr. Tucker is
next. Dr. Tucker is the Director for Industrial Policy and
Trade at the Roosevelt Institute. You are recognized for 5
minutes, sir.
STATEMENT OF TODD N. TUCKER, DIRECTOR, INDUSTRIAL POLICY AND
TRADE, ROOSEVELT INSTITUTE
Mr. Tucker. Thank you, Chairman Luetkemeyer, Ranking Member
Beatty, and distinguished members of the subcommittee. I thank
you for the opportunity to testify today on the DPA.
As a political scientist who has studied the history and
evolution of the DPA, I wish to make three major points. First,
the DPA promotes the health of the economy as a whole, both
military and civilian. Neither the DPA nor its predecessor laws
from the Franklin Roosevelt Administration are narrowly focused
on military issues or military procurement. From the beginning,
the health of the civilian economy and, in particular, energy
production has been a central emanating concern.
After all, we do not have two economies. Industries produce
for both military and civilian sectors. The dual mandate is
well reflected through the referral of jurisdiction of the law
to this committee, which can take a broader view of the economy
than your armed services counterparts. Moreover, Executive
Order 13603, codifying the responsibilities for the DPA, gives
major responsibilities to a wide range of agencies beyond just
the Defense Department.
Looking at the DPA text itself, you can see why this dual
mandate exists. It speaks to the importance of the health of
the domestic industrial base as a whole, not simply the defense
industrial base. It points out that the domestic industrial
base needs support to have continuing improvements in its
efficiency and responsiveness. Moreover, the DPA goes further
and states that independently of any particular military need,
to the maximum extent possible, domestic energy supply should
be augmented through reliance on renewable energy resources.
And the text also points to the importance of the
competitiveness of the industrial economy of the U.S. as a
whole.
Second point. The DPA is a diverse toolkit with diverse
applications, some at low to no cost to the taxpayer. Title I's
priorities and allocations are used hundreds of thousands of
times a year. This helps resolve supply chain problems by
making sure that materials go to the most urgent and important
uses.
FDR used the DPA's predecessor powers to ensure that steel
and other materials were directed towards their highest-value
uses in both the civilian and military economy. President Trump
used DPA authorities to get vaccine manufacturers the inputs
they need and to go after price gouging in the personal
protective equipment (PPE) industry. And responding to demands
from members of this committee and others, President Biden's
use of the DPA prioritized baby formula manufacturers' orders
of key ingredients, helping to ensure that parents across the
country could feed their infants.
Second, Title III, as has already been discussed, provides
useful incentives to promote the industrial base of the country
and energy production. FDR, President Trump, and President
Biden used these for a variety of uses, including critical
minerals, producing more aluminum, and also responding to the
COVID-19 crisis.
Third, Title VII gives the government the power to obtain
information and encourage cooperation among private sector
entities. Presidents Trump and Biden have used this to promote
cooperation among vaccine manufacturers and distributors. Both
have also used the possibility of soliciting mandatory
information under Title VII to get more voluntary agreements
with private industry.
Third point. The DPA can boost American competitiveness and
preparedness in a volatile world. There are a number of serious
threats that the DPA can help address. First, China and, to a
lesser extent, other trading partners are aggressively pursuing
industrial policies to capture market share at the expense of
U.S. companies. In recent decades, we have seen this in steel,
solar, and now electric vehicles.
To put this in comparison, the Organization of the
Petroleum Exporting Countries (OPEC) controls 40 percent of
global petroleum production, a fact which has focused the minds
of policymakers on this committee and elsewhere for half a
century at least. Today, a single country, China, controls
upwards of 90 percent of some of the supply chains that are
critical to future energy resilience and independence.
Moreover, European allies are advancing beyond the U.S. in
critical sectors like wind and green steel.
Second, and relatedly, U.S. economic, military, and
intelligence agencies deem climate change one of the top risks
to economic and national security. Until recent years, it was
rare for the United States to experience an extreme weather
event that caused more than a billion dollars in damage. Today,
these are happening, on average, once a month. In 2021, nearly
1,000 people died from these events. These events have lasting
impacts on economic growth and financial security. Americans
are affected by this in still other ways, such as where DOD is
incurring billions of dollars a year in damages to base camps
from extreme events.
Each of these dynamics will interact with the previously-
noted industrial policy trends to create both challenges and
opportunities for the U.S. industrial base and its efficiency,
responsiveness, competitiveness, and access to energy. In the
face of all of these challenges, the DPA can serve as a patch
and a complement to other laws enacted by Congress. Thank you
for your time, and I look forward to answering your questions.
[The prepared statement of Dr. Tucker can be found on page
47 of the appendix.]
Chairman Luetkemeyer. Thank you, Dr. Tucker.
We will now turn to Member questions. The Chair recognizes
himself for 5 minutes to begin the questioning.
Mr. Nicastro, the Defense Production Act has been
reauthorized many, many times, as you mentioned. As you think
about the next reauthorization, what lessons can this committee
draw from previous experiences, and what are the best practices
that have emerged from your review of its history?
Mr. Nicastro. Thank you, Mr. Chairman. I think to the
extent that Congress can take a forward-thinking approach and
incorporate its priorities as these relate to national strategy
generally, and industrial policy more specifically, that has, I
believe, tended to be looked back upon by Congresses as an
element of successful reauthorization of the DPA.
As an example, one could look to how the DPA was
reauthorized in the aftermath of the Korean War and see that
the Congress at that period was looking forward to potential
future crises and trying to alter the legislation such that the
authorities that were necessary when the U.S. was actively
engaged in hostilities in Korea were eliminated or were allowed
to lapse, while those that were more suitable to a peacetime
environment were retained and potentially expanded.
Chairman Luetkemeyer. Each of you in your testimony talk
about the importance of this Act, and I certainly agree with
that. I think it is very important that we are able to protect
our country and find ways to move forward with supply chain
problems and be able to prioritize our defense needs or some of
the others from time to time. One of you made the comment with
regards to a deterrent, about having stockpiles. I think Mr.
Zakheim made the comment with regards to having a stockpile of
the stuff actually, even if we never have to use it, as a
deterrent to other people, other countries around the world to
be less aggressive, so I think there is a need for all of this.
I am kind of concerned about the expansion of this, and Mr.
Nadaner and Mr. Zakheim, you have both commented quite
extensively on concerns about it. And when we see some of the
things that we have used it for, for instance, to solve the
baby formula problem--trust me, I am not against children. I
realize that was a national problem at that time, but is
implementing the Defense Production Act a way to solve that, or
can the President, by Executive Order, do that? Would each of
you like to comment on some of the things that we were using it
for now, and are there other alternatives, such as an Executive
Order, or other ways to address this rather than use the
Defense Production Act?
Mr. Nadaner. Mr. Chairman, I could not agree with you more.
One way is to go to Congress and to seek an appropriation, and
on something like baby formula, Congress will act very quickly.
At least that is my experience. The Defense Production Act
covers everything from national defense to the weather.
National defense in itself is a very substantial undertaking,
so I believe if it is outside national defense, it has to be
something on which basic societal functioning depends, like the
electricity may go out or the water may go out. And we may face
scenarios like that in the future, or if there is a terrible
disease.
Chairman Luetkemeyer. Do we need a definition in law then
to codify this in a way that kind of narrows it a little bit,
or is there something else that is in here that already does
that?
Mr. Nadaner. No, I think there could be some narrowing in
the law. Maybe a good place to start--in the Obama era, the
national preparedness Executive Order even expands upon the
law. I would trim that down to these two core areas: basic
societal functioning; and military systems.
Chairman Luetkemeyer. Mr. Zakheim?
Mr. Zakheim. Mr. Chairman, I would only add that we ought
to tailor the use of the DPA and the funding to the national
defense strategy. It is quite clear what the priority is in the
national defense strategy. China is labeled as the pacing
threat. It is the first. There are distant seconds, thirds, and
fourths, and that should be reflected in the allocation use of
this very unique authority, and I think that would help the
execution of the law.
And certainly, if you are in a national emergency, there is
flexibility. It is why it is so unique. But day to day, it
should be guided by our national defense strategy and, of
course, China. Whether you are looking at the Biden national
defense strategy or the Trump national defense strategy, it
starts with the People's Republic of China (PRC).
Chairman Luetkemeyer. Okay. Mr. Nadaner, very quickly here;
my time is running out. With regards to oversight over this,
there are a number of different agencies that wind up utilizing
the DPA. Do you see a need for an Inspector General over just
this program, or are they adequate where they are at? Should we
have the agencies compile themselves into one so there is
actually some oversight over everything? How do you see it,
because now we are at billions of dollars rather than a few
million dollars that are invested in this program. How do you
see that?
Mr. Nadaner. I think I would require more transparency from
the office on a regular basis. However, an Inspector General
who is going to be dedicated to this program, I think it is
going to have a chilling effect. One of the problems that we
have had with DPA is that the action is too slow, and that is
partially because of risk aversion.
Chairman Luetkemeyer. Okay.
Mr. Nadaner. If there is a problem, Inspectors General can
be appointed. There is the Government Accountability Office
(GAO), and there are certainly congressional hearings.
Chairman Luetkemeyer. Okay. My time is up. I appreciate
that. Thank you very much.
Mr. Nadaner. Thank you, sir.
Chairman Luetkemeyer. With that, the gentleman from Texas,
Mr. Gonzalez, is recognized for 5 minutes.
Mr. Gonzalez. Thank you, Mr. Chairman. Mr. Nicastro, nearly
all Defense Production Act authorities will terminate on
September 30, 2025, with a few exceptions, such as the
Committee on Foreign Investment in the United States (CFIUS)
and antitrust protections for certain voluntary industry
agreements. As the primary committee of jurisdiction in the
House, we are responsible for the reauthorization. Could you
give us examples of what would happen if this authorization
were to lapse?
Mr. Nicastro. Thank you, Congressman. The biggest impact of
a lapse of this authorization would be the loss of tools for
the Executive Branch, and these tools have been used off and on
for over 7 decades. With Title I, you would be talking about a
change to the way that DOD does its contracting, because the
priorities and allocation system is very deeply ingrained. DOD
reports placing an average of 300,000 to 350,000 of what they
call rated orders through that system.
With respect to Title III, DOD reports at least 56 active
projects that are ongoing. So presumably, if that authority
were to lapse, those projects could not be executed. And,
again, that is a fairly substantial tool to which the Executive
Branch would lose access.
Mr. Gonzalez. Thank you. This is to all of the witnesses.
Traditionally, the Defense Production Act has been a bipartisan
law with broad support from both parties. Together, Members of
Congress have supported the Defense Production Act being used
through wars and pandemics, among other crises. Why is it
important to keep the law and the reauthorization as a
bipartisan endeavor, and why should members reject partisan
rhetoric and actions when it comes to national defense?
Mr. Zakheim. I am happy to begin, sir. If you look at every
President of any political party, this is a tool they rely on.
And, of course, whether it is the United States engaged in
armed conflict or, as I have outlined, to try and prevent one
through deterrence, or a national emergency like COVID-19, you
don't wear your party suit for that one. You are American, and
this is an essential tool, which is why we have the opportunity
to testify before you as you consider the 54th authorization.
I don't have to tell members of this committee how unusual
perhaps it is to have one law see that many authorizations, and
it is a reflection of its importance. What I think we are
talking about here, and then I will turn over to my colleagues,
is the prioritization, because the challenges before us are
great on the national defense front. They run deep, and this is
an essential tool with limited resources, and they should be
allocated to our national defense priorities.
Mr. Gonzalez. Thank you. I couldn't agree with you more,
and this is also to all witnesses. In a Defense One article,
two experts on the Defense Production Act and government
contracting note that the Defense Production Act is governed by
a mishmash of old and overlapping Executive Orders spanning
numerous Administrations. Should the Biden Administration
consider how to refresh and simplify these decades of orders,
perhaps issuing a new Executive Order that clearly outlines and
aligns the Defense Production Act and other authorities,
policies, and responsibilities to better position the
government to address future national emergencies, and if so,
what do you suggest?
Mr. Nadaner. If I may, sir, I have been the administrator
of the Defense Production Act. I did not find the collection of
Executive Orders that date back sometimes a few decades, but
most of them are fairly recent--I didn't find it an impediment.
I do think there are structural changes in the opposite
administrators' DPA that could be useful and that could be
written into law. I think one is, currently, the law requires
that office to use an executive agent from the Air Force. That
is performed out of Dayton, Ohio, which made sense in the days
when the total office for industrial base, all the functions,
way beyond DPA, had around 10 people. Today, there are several
hundred people, so I think the distance from decision-makers is
a problem. It is creating a principal agent issue, so I would
end the executive agent.
And then, I think there is a need for real, not just
bodies, but subject matter experts. We are talking about areas
like energetics, welding, machining, and advanced
manufacturing, so I think there are roughly 10 sort of
master's- and Ph.D.-level experts that are required, and I
believe that the law should allow that office to pay for that
as a percentage of the grant.
Mr. Gonzalez. Thank you. I yield back.
Chairman Luetkemeyer. The gentleman yields back. The
gentleman from Kentucky, Mr. Barr, who is also the Chair of our
Financial Institutions Subcommittee, is now recognized.
Mr. Barr. Thank you, Mr. Chairman. And, Mr. Zakheim, I was
very impressed and alarmed with your testimony that the DPA has
drifted from its original focus on national defense to
addressing non-defense national emergencies, and no example is
more alarming than your testimony that none, zero, of the DPA
funding appropriated in the Inflation Reduction Act has gone to
core national defense needs. Mr. Zakheim, what is the specific
and pressing danger of allowing the DPA to lose its focus on
national defense?
Mr. Zakheim. Thank you for the question. It is what I
outlined in my testimony. If you look at our core national
defense needs, they are suffering from insufficient funds to
get after the recapitalization and increase their capacity, and
that runs, as I outlined, in three core areas. If you look at
the funding outlook on an annual basis in defense
appropriations that the Department of Defense relies upon, it
is declining year-over-year in terms of what they have planned
in the program for the DPA.
In other words, these increasing needs, whether it be
munitions, ship building, or ship maintenance, there is going
to be, based on the Biden Administration's funding program,
fewer and fewer dollars available to address those critical
national defense needs. As a result, we need to prioritize. If
you just look in the coming years, we have $949 million in
Fiscal Year 2024. It is going to go down by nearly half in the
next 2 fiscal years.
Mr. Barr. One of the things that I have said a lot, not
only in this subcommittee, but also as a member of the China
Select Committee, is that we should not try to counter China by
becoming more like China. We should not think that we can
counter China or deter China or defend ourselves against
Chinese aggression by imitating Chinese industrial policy, so
the DPA does serve a narrow and unique purpose. But non-
defense-related matters should not be the target of the DPA,
and I think you make a good point for prioritization.
Dr. Nadaner, accelerating Foreign Military Sales (FMS) to
Taiwan is critical to maintaining deterrence across the Taiwan
Strait, but there is currently, as you well know, a $19-billion
backlog of weapons that the U.S. has sold but not delivered to
Taiwan. How can the DPA be used to accelerate those deliveries
to establish the deterrence necessary?
Mr. Nadaner. The Title I authorities can be used to give
prioritization to those orders, but the creaky defense
industrial base is going to need a lot of injections of DPA
Title III grants or loan guarantees. It just simply cannot
produce very much. If you notice, sir, around the world, our
adversaries--China, Iran, North Korea--do not have a problem
producing large numbers of weapons. We, on the other hand, the
collection of countries--the U.S., Europe, our allies in Asia--
do have trouble, and that tells you a lot about the correlation
of forces.
Mr. Barr. I think that is why we need to focus the DPA on
national security only because we do have a prioritization
need, and that is why DPA should be squarely focused on cross-
strait deterrence and FMS deliveries to Taiwan and our own
industrial base, defense industrial base.
Let me ask you about critical minerals, because I am very
concerned about our overreliance on China for critical minerals
and how the DPA could help decrease that dependence. The PRC
has already weaponized their holdings of these minerals and
their dominance of not only the supply and production of
critical minerals, but also the processing. And they have
temporarily cut off exports of gallium, germanium, and graphite
in 2023, weaponizing the supply chain. Last year, the total
value of minerals in the U.S. national defense stockpile was
only $1.3 billion, which was 8.8 percent of DOD's 2023
stockpile requirements, a shortfall of $13.5 billion. What can
Congress do, through the Defense Production Act, Dr. Nadaner,
to close this rather significant gap in our stockpile?
Mr. Nadaner. Critical minerals and rare earths are needed
in every weapons system, and indeed, all of the electronics
that we use every day. The fundamental reason how China has
grabbed the processing market for minerals--they don't have
that much minerals and rare earths; they import a lot of them,
but they own the processing--is largely through subsidies. If
we want to have processing in the U.S., we are going to have to
alleviate the capital expenditures (CapEx) cost. DPA Title III,
particularly the loan guarantees, could make a big difference
in enabling Americans to get back in the processing business.
Mr. Barr. My time has expired. Thanks for the
recommendation, but also, I think we need to look at permitting
reform. We can mine critical minerals in the United States if
the Administration would stop its war on mining in America, and
we can become national security-independent of China on this
issue. With that, I yield back.
Chairman Luetkemeyer. The gentleman yields back. The
gentleman from North Carolina, Mr. Nickel, is recognized for 5
minutes.
Mr. Nickel. Thank you, Mr. Chairman. And thank you for our
witnesses for being here today. The Defense Production Act is
an essential tool for our national defense. Not only can we use
it to ensure military readiness in times of crisis, but we can
also protect the health and safety of everyone in the U.S.,
including members of our armed forces.
At the beginning of the COVID pandemic, the U.S. Government
deployed the Defense Production Act to help America respond to
the crisis, speeding up the production and access to critical
materials like masks, vaccines, and ventilators. DOD, for
example, awarded O&M Halyard a $29-million contract under the
DPA to expand its production of N95 masks, including at a
facility in Lexington, North Carolina.
Additionally, DOD awarded a North Carolina company,
Burlington Industries, a $6.8-million contract to sustain and
strengthen the domestic clothing and textile industrial base.
This company has provided uniform fabric to the U.S. military
for over 70 years. This vital funding came at a time when North
Carolinians were struggling with the virus and to make ends
meet.
Unemployment and economic distress were rising as the
country coalesced to tackle this significant public health
challenge. Without DPA funding, our health, troops, and
national defense all would have suffered. Additionally, if we
are reliant on countries like China for crucial medical
devices, we are jeopardizing our national security. Investments
in public health are investments in our national defense.
My first question is for you, Dr. Tucker. Does dependency
on foreign production for critical health supplies, like
ventilators, create vulnerabilities for our national defense?
Mr. Tucker. Yes, absolutely. The DPA defines the national
defense broadly to include about a dozen different
considerations, all of which speak to the ability of domestic
industry and the domestic industrial base to supply not only
military but also civilian needs. And it has been that way
since the predecessor legislation of the First and Second War
Powers Acts during the Roosevelt years. So, absolutely, that
resilience against sort of overdependence on foreign supply has
always been a key mandate.
Mr. Nickel. Thanks. Dr. Tucker, as Congress has expanded
the definition of, ``national defense,'' in what ways do novel
uses of the DPA, like in the context of the COVID-19 pandemic,
improve our national security?
Mr. Tucker. Public health is a key contributor to our
ability to be resilient as a country, and that affects both our
citizens that are in the military as well as elsewhere.
Certainly, within hours of sort of COVID hitting the United
States, members of this committee and others made clear that we
needed to use this exceptional authority to be able to address
an exceptional challenge.
Mr. Nickel. Thanks. You presented a persuasive argument in
your opening statement for why renewables and clean energy are
appropriate for DPA activity for our national defense. I am
sure you would agree that there are boundaries with that. We
can't solve the climate crisis entirely with the DPA. Can you
please provide some examples of where DPA use would be
appropriate? For example, how do we ensure that Seymour Johnson
Air Force Base, in my district in North Carolina, can continue
to function without a reliable source of power?
Mr. Tucker. Absolutely. There is a reason that energy
production has always been, and very explicitly in the last
several decades, a key part of the DPA. It is because of the
recognition that the rest of the economy runs on energy. So,
there has been an emphasis on both renewable and nonrenewable
sources of energy to be able to keep Air Force bases and Army
bases running, as well as the rest of the civilian economy,
because the ability of the domestic industrial base to meet any
of the needs that Congress has outlined in terms of definition
of, ``national security,'' and, ``national defense,'' is
crucial on the supply of energy.
Mr. Nickel. Thanks so much, and I yield back.
Chairman Luetkemeyer. The gentleman yields back. The
gentleman from Pennsylvania, Mr. Meuser, is recognized for 5
minutes.
Mr. Meuser. Thank you very much, Mr. Chairman. And thank
you all for being here. It is an interesting situation. I
appreciate all of your insights thus far and your opening
statements. I particularly like the statement that we need to
put the, ``D,'' back in, ``DPA,'' and it sounds like that needs
to be done, and that needs to be taken very, very seriously.
The White House has many regulatory loopholes to subsidize
and has been doing the green energy projects instead of fossil
fuels and such and nuclear and all, and one could make an
argument, as some of you are, that that is at the expense of
our national security when we don't have an all-of-the-above
and all-of-the-below as well approach. We purchase from Russia,
China, Venezuela, and Iran, and allow them to fulfill the
needs, and all kinds of other countries as well, so that is
just backwards thinking.
The Inflation Reduction Act appropriated $500 million for
the DPA activities just through this September, as you all
know. Now, $250 million of it was used not for mining, but for
purchasing of critical minerals from the countries I just
named, from Venezuela and elsewhere. And another $250 million
out of, I believe, a billion-dollar budget was used for
electric heat pumps. And what creates electricity? Coal, in
many cases, so, it is not working. Usually, when ideology is
put in front of realistic planning and results, foolish things
happen, so the level of discretion is too broad for the
ideologies of this Administration. They are not following what
the intent of the DPA is, and I think this discussion makes
that pretty clear.
Mr. Zakheim, in your view, is the White House exploiting
the broad authority in Section 303 and picking winners and
losers and which company to buy electric heating pumps from and
such, and is it outside of the intended use of the funds within
the DPA?
Mr. Zakheim. Thank you for the question, and I think it was
a missed opportunity, certainly, the allocation of the $250
million in the Inflation Reduction Act. And as we have been
discussing, going forward, what does the Department of Defense
and what does Congress intend to do? As I noted, if you look at
the Biden Administration budget, the funds that they are
planning to put against DPA are declining significantly,
roughly half of what was authorized and appropriated in the
previous fiscal year.
At the same time, this Congress passed a law in last year's
National Defense Authorization Act requiring that any,
especially, minerals and materials that are sourced from China,
need to be sourced elsewhere, primarily by the United States,
by 2028. And what I would think this committee would want to do
as it reauthorizes DPA is say, well, how are we going to ensure
that that mandate passed by this Congress for 2028--how is the
DPA going to support that? And that, I think, leads to the
prioritization, sir, that you seem to be emphasizing, with
which I agree.
Mr. Meuser. Okay. Thank you.
Dr. Nadaner, can you discuss the role of the U.S.'s
domestic permitting process? As we spend this money on mining,
which is really purchasing these minerals from elsewhere, how
that plays into this, and should that be considered part of the
DPA mandate or within the DPA so we can utilize our own natural
resources?
Mr. Nadaner. Yes. Mining and mineral processing has an
inextricable link to the DPA, particularly when we are so
dependent. The fact is that to do almost anything significant
in terms of infrastructure in this country, we have a
permitting process that is double the time of Canada and Norway
and Australia. These are countries that have environmental laws
that are at least as good as ours, if not superior--double the
time. So, if it is 7 years to get the permitting and the
litigation done in Canada, it is 14 years here.
Mr. Meuser. Thank you. I yield back, Mr. Chairman.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, we go to the gentleman from Illinois, Mr. Foster,
for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman, and thank you to our
witnesses. I am going to start off by saying I am a big fan of
how the flexibility of these authorities have been used. In the
last Congress, I was on the COVID Select Committee, and I
collaborated with Representative Mark Green in initiating and
observing the GAO oversight of Operation Warp Speed, and I have
to say I was impressed. This was an emergency. The standard was
not zero waste. The standard was maximum haste, and that was a
good decision. There were many lessons learned from that, and
the GAO is a really valuable tool in this. But I think that is
an example where something completely unanticipated turned out
to be crucial, so I am a fan of keeping these flexible.
However, there are a bunch of issues.
Mr. Nicastro, what fraction of all of our military spending
goes through the DPA?
Mr. Nicastro. Thank you, Congressman. The answer will
depend on the timeframe that we look at, but if we look at DPA
spending since Fiscal Year 2020, say, inclusive, that is about
$13.1 billion. Compare that against the total defense budgets
for the past 3 or 4 fiscal years, and it is a fairly small
fraction, it's safe to say.
Mr. Foster. Like, percent level. What is the total defense
budget?
Mr. Nicastro. So, $13.1 billion, sir, and if you had an
annual defense budget around $800 billion, it is----
Mr. Foster. Annual? Okay. So, probably, it sounds like a
sub-percent level.
Mr. Nicastro. Yes, sir.
Mr. Foster. Yes. Mr. Zakheim, you mentioned our inability
to build ships at the same scale, so the money that we spend
through the DPA is not going to rebuild the shipbuilding
industry. That has to be handled at a much higher level. And
would you agree that these are very targeted, small things, not
big ticket items?
Mr. Zakheim. Yes. And as you know, there are shipbuilding
accounts with authorization, appropriation, but this is such a
unique authority that can have outsized impact. And that is
what I am trying to emphasize today, that if we allocate this
against some of these capital projects, and I would also
advocate increased appropriations for the DPA, you could have
outsized impacts. Dr. Nadaner has referenced these loan
guarantees. For example, a loan program, if it is revitalized,
could have a significant impact on ship maintenance facilities
and shipbuilding of the capital nature where the current
industry is unable to accomplish.
Mr. Nadaner. Sir, if I may add?
Mr. Foster. Yes.
Mr. Nadaner. It is conceivable that a future Congress and a
President faced with a national emergency coming from abroad
may say we need to produce a lot more. And in that case, given
the holes in the defense industrial base, and how slow
production is going, you could see $50 billion a year. It would
make a huge difference in the industrial base and allow
production.
Mr. Foster. Okay. And how should we deal with the problems
with political allocation of capital, fighting the last war,
Senators preserving shipyards that happen to be in their States
for things that really have limited military value? You
mentioned China's electric vehicle (EV) subsidies. There are
vast junkyards of junk EV vehicles in China because factories
have been built to capture the subsidies rather than to produce
cars that will actually be used. Do you have any thoughts on
how we can try to avoid that? Go ahead?
Mr. Tucker. Yes. Because the scale of China's subsidies are
so vast--we just heard from the CRS about the relatively small
amounts that are going to this in the United States. I think
what you are hearing actually from all of the testifiers today
is that there would be value and significantly more resources
being dedicated than there are today. And I think we are still
quite a far ways away from the DPA being a source of a lot of
waste in the U.S. Government spending.
Mr. Zakheim. I just want to add quickly here, I think the
problem we face from an industrial base standpoint, from a
defense industrial base program, is not that we have held on to
things we don't need because we drew down. Particularly, in the
early 1990s, we lost the things that we need. Businesses became
more efficient, and those capabilities went overseas, primarily
to China, and it is that problem that we are trying to recover
from right now.
Mr. Foster. Yes, but if you look into the future, drone
swarms are going to be much more cost-effective than capital
ships, and, in fact, a big fraction of China's ships will not
survive the first few hours of a heavy shooting war.
Mr. Zakheim. There is no question you need a mix, sir, of
new tech, but I think as we see from Ukraine and what the
contingency operations look like in a Taiwan Strait scenario,
as referenced earlier, you are going to need ships,
particularly, undersea warfare, of the kind that we have, we
need more of.
Mr. Foster. Okay. My time is up, and I yield back.
Chairman Luetkemeyer. The gentleman yields back. The
gentlelady from California, Mrs. Kim, is recognized for 5
minutes.
Mrs. Kim. Thank you, Chairman Luetkemeyer. And I want to
thank our witnesses for being here with us today.
The conflicts around the world increased the demand of U.S.
weapons from our allies, and that demand has also overstretched
our weapon-making capabilities and revealed the fragility of
our domestic industrial base. For example, according to one
report, there is just one factory in the United States that can
manufacture the black powder for one of the shells most widely
used by the Ukrainian military. And our shipbuilding capability
has also diminished in the last few decades. According to a
U.S. Naval Institute report, we have 7 shipyards that build
warships for the Navy, while the Chinese Communist Party (CCP)
operates more than 20 shipyards to support their naval
shipbuilding.
Mr. Zakheim or Mr. Nadaner--you can both answer this
question--do you believe that DPA can be utilized as a tool to
encourage more competition, and if so, are there any changes
that could be made to do so?
Mr. Zakheim. I will start, and then turn it over to Dr.
Nadaner, and thank you for the question. I think with the
allocation of the DPA, those making the awards, as Dr. Nadaner
oversaw in his time in the Pentagon, need to make sure that the
projects not only ensure that the capital is going there and it
is going to increase capacity, but we are also looking to use
the DPA against key areas like permitting, as was referenced
before, and workforce programs, to make sure that if the
capital goes in, the project can actually be executed based on
these other things. And Dr. Nadaner has referenced how we are
way behind in terms of the permitting, but I do think that the
DPA, because of its unique authorities--we will see the funding
go up in the future and scale to address some of the strategic
problems that you have just identified.
Mrs. Kim. Thank you.
Mr. Nadaner. This committee has a weighty responsibility to
create the framework that other committees and the full
Congress will have the option of implementing. I would note
that whether it is the more traditional, heavy, big systems, or
the new systems, like artificially intelligent drones and
swarms, the percentage of Chinese parts and components in these
systems is unforgivable. I am not even talking about conflict.
Let's say there is a trade interruption. All of these factory
lines that produce these drones are going to stop because they
have sometimes 10 to 40 percent essential Chinese components in
their systems.
Mrs. Kim. Thank you. In Executive Order 14110, the Biden
Administration compels private industry to provide information
on its development of artificial intelligence products. That
order makes a seemingly novel use of DPA's Title VII, a
compulsory information-gathering authority applied to an
industry that has not otherwise been subject to DPA actions
under either Title I or Title III. Has the DPA been used this
way before, and if so, how often has it been used? Who wants to
answer that?
Mr. Nicastro. I can give it a shot, Congresswoman. Title
VII has been used historically to inform what are often
referred to as industrial base assessments, which have been
conducted under the aegis of the Department of Commerce. You
are correct that to my knowledge, at least, artificial
intelligence has not been the subject of the application of
those authorities. So, this does raise a question as to which
areas Congress believes to be the most appropriate for the
application of DPA authorities.
Mr. Nadaner. There is a monetization issue in terms of how
the DPA will operate in Title VII--Title VII is basically, the
government is issuing a survey for how something goes. That is
a very old way of doing things. Today, in the commercial
sector, people sit in front of a laptop and they do a few
keystrokes and they can find out all the capabilities in the
supply chains, whether it is artificial intelligence software
or the hardware. They can do that all instantaneously, and
Congress has provided for that through the commercial
preference rule. So, I think that an updated DPA would be wise
to reinforce with the Executive Branch. It is in this regard of
the commercial preference rule which Congress has thought about
and has made part of the law.
Mrs. Kim. Thank you. One last question. Mr. Zakheim, can
you explain the importance of surge capacity regarding the
United States' defense industrial base?
Mr. Zakheim. As we have seen from the war in Ukraine, I
know over time it will be quick. We are not able to surge.
Production lines have been made to be, ``just in time.'' That
may work for the Walmarts of the world, but for national
defense, ``just in time,'' means, ``just out of time,'' and we
can't realize our national defense objectives.
Mrs. Kim. Thank you very much. My time has expired.
Chairman Luetkemeyer. The gentlelady's time has expired.
With that, we go to the gentleman from California, Mr. Vargas,
for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman, and thank
you for holding this hearing. I think it has been very
illuminating. I guess I would start at the beginning by saying
that no one here is saying we should get rid of the DPA. Is
that correct? It seems to me that the flexibility it provides
is something that is good. We are arguing here about what
should be in it and what should not be in it, which I think is
important.
During COVID, I introduced legislation to support the
President's use of the Defense Production Act authorities to
further strengthen the production, acquisition, and
distribution of critical medical supplies across America during
the public health emergency because I thought it was part of
national defense. In fact, it is very interesting. Why do we
call the Spanish flu the, ``Spanish flu?'' Does anybody know
why? Why don't we pick on somebody here?
Mr. Zakheim, why do we call the Spanish flu, the, ``Spanish
flu?''
Mr. Zakheim. I believe it happened during the war in Spain
and then, ultimately, World War I.
Mr. Vargas. Okay. Not exactly. Why don't we try somebody
else? Go ahead, sir?
Mr. Nicastro. Sir, I believe it was an effort to avoid a
panic associated with American troops being overseas in World
War I, because Spain was not a combatant in that war.
Mr. Vargas. That is exactly right. In other words, the
Spanish Flu didn't originate in Madrid or in Spain. In fact,
because of the war, we were trying to not let people know that
a lot of our soldiers were getting sick also, and we were able
to control the media back then a little bit more than we can
today, and that is why, ultimately, they called it the,
``Spanish flu.'' But noting that because of our national
defense, because our troops were in harm's way, that is why we
didn't want people to know that they were sick. That is
national defense, so I think it was very well used during the
pandemic. Once again, the pandemic was, I think, something that
fit national defense criteria. Would anyone disagree with that?
Mr. Tucker. I would not disagree with that. I think that
there is not a clear boundary when it comes to a lot of these
things between military and civilian production. The Congress
has rightly recognized over 52 times that these things are
deeply interconnected, which is why you have had bipartisan and
often unanimous approvals for exactly those types of uses.
Mr. Vargas. I agree with that, and I think it gives not
only us, but the Executive Branch some flexibility that is
necessary, so I think that is very important.
Now, one of the things that did concern me--I represent the
City of San Diego, and I represent the shipbuilding base there.
And one of the things that they do is try to get work, both
private work and government work, to keep afloat, but that has
been a real problem.
Mr. Zakheim, I think you are the one who gave us that
startling statistic--232 times the capacity that we have. It
doesn't seem like the DPA necessarily is the right place to
create that capacity, but I am very concerned about that. How
can the DPA work in conjunction with other authorities to help,
because I do think that this is a problem, especially being on
the Pacific and understanding the issues of the Pacific Ocean
out there and how we do need shipbuilding. No matter what
people think in the modern age, the reality is that you will
need some ships.
Mr. Zakheim. Agreed, sir, and the GAO, in a 2023 report,
said there is a $1.8-billion backlog in ship maintenance in
addition to the shipbuilding. And as we have referenced
earlier, the DPA would complement the shipbuilding accounts
that the Armed Services Committee and the Defense
Appropriations Subcommittee authorize and appropriate, so it is
a key tool that should complement that effort.
And I think the dynamic that the Department of Defense is
facing is that it doesn't have the funding available for the
capital expenditures and then to go directly into the supply
chain, works, of course, through primes primarily, and, as a
result, the DPA is an essential tool. And as Dr. Nadaner
referenced, I think if we are going to get after this problem,
you would see increased appropriation and allocation for DPA to
get to a scale problem like shipbuilding.
Mr. Vargas. I do think it could be used strategically that
way, and I do think that we should take a look at that, and,
again, I thank all of you for being here. I appreciate the
commentary this morning. I thought it was excellent from all of
you, and I do think that this is a good authority that we have,
and we just have to figure out how to use it a little bit
better. And again, Mr. Chairman, I thank you very much for
bringing it forward. Thank you, sir.
Chairman Luetkemeyer. Thank you for your questions, and the
gentleman yields back. With that, we go to the gentleman from
Iowa, Mr. Nunn, for 5 minutes.
Mr. Nunn. Thank you, Mr. Chairman, and I appreciate this
entire panel for being here. We have talked a lot about the big
picture aspect of the defense industrial base. I would really
like to hone in on some of those cutting-edge technologies and
the smaller elements that help our defense industrial base be
both fluid and successful.
For a while, I worked with the Defense Innovation Unit
(DIU) out in California to really bring in some of the
technology pieces as a liaison before I took this exciting job.
But now that I look back in Iowa, I recognize immediately we
have a ton of small businesses that are helping in the defense
sector. Army Armaments, Wellman Dynamics, and then, of course,
some of the bigger ones like Collins Aerospace, all play a
critical role, and all have a component in our hometowns. So,
the time is now for the U.S. to gain a competitive advantage,
Mr. Chairman, in the defense technology manufacturing side of
this.
Dr. Nadaner, you have obviously worked at the Department of
Defense. You have seen this. Do private sector defense tech
startups have an easy follow-on path to get into government
procurement and acquisition?
Mr. Nadaner. Sir, they do not. In the Department of Defense
15 or 20 years ago, all of the flag officers were saying, why
can't I have the technology that exists in the commercial
sector, and I look at my iPhone and why do I have this
cumbersome equipment here, and there weren't many startups.
Now, there are a ton of them. American entrepreneurship is very
strong. A lot of people in the tech sector want to help
defense, and they can do things sometimes 10 to 20 times
cheaper. However, the path into the Department of Defense,
because of the Defense Finance and Accounting Service (DFAS) is
extremely hard, and the Defense Production Act could open up a
lot of competition if used properly.
Mr. Nunn. Now, talk to us about some of the things that
could help a startup company, whether it is something in
artificial intelligence or whether it is a guy making a better
armament or a body protective vest, to be able to get on with
our Department of Defense today?
Mr. Nadaner. One is, Title I can be used to give them a
priority allocation for the order. Then, the CapEx is always an
issue, and defense equipment has hardware, and it is CapEx-
intensive, and CapEx is a very unfavorable thing in the U.S.
economy compared to Germany, Korea, or Japan. So, the DPA Title
III grants could enable them to have the infrastructure that
they need to produce that hardware.
Mr. Nunn. Thank you. I think it is really important that we
also look at what the need base is.
Mr. Zakheim, you have talked with us here today about how
we have moved from, ``just in time,'' to, ``just out of time.''
Let's be judicious about this. Does the Defense Innovation
Board (DIB) currently have the ability to meet a surge capacity
if we needed it right now?
Mr. Zakheim. I can't think of an example where we have a
surge capacity across the defense requirements.
Mr. Nunn. And we have ongoing conflicts in Europe and the
Middle East that have depleted what backfill we already have.
Would you agree with that?
Mr. Zakheim. Absolutely. That is why the supplemental is so
essential.
Mr. Nunn. If China were to invade Taiwan today, one of the
questions I have for you, Mr. Zakheim, is, would the U.S. be
properly positioned to react in a sufficient manner for us to
be successful in that conflict?
Mr. Zakheim. We certainly have our defense leadership
dealing with this and getting ready for it every day. But the
way I would think about it, particularly as it relates to the
Defense Production Act, is what happens if it is a protracted
conflict? That is a question this committee needs to
internalize. The first week, the first 2 weeks, the first 3
weeks should be okay, but if it goes on longer, and as we look
at conflicts, how they have played out in recent years, that is
where we will feel the strain, and that is where we will regret
not properly capitalizing this particular authority.
Mr. Nunn. Like any good military officer, we have
identified the threat. I want to talk about solutions now. Talk
to us a little bit about what the DPA might do to mitigate some
of the shortfalls within the DIB?
Mr. Zakheim. I have outlined a bunch in my testimony. Dr.
Nadaner emphasized permitting, which I have in my testimony as
well. But one that you made me think of is a conversation I
recently had with a CEO of a new startup, a venture-backed
entity, the kind that you would have engaged with at the DIU,
who put in for DPA support, and 18 months later, he is still
waiting. And this would be a game-changing manufacturing
technology that would actually remove requirements for tooling
in manufacturing because of 3D printing capability. That sort
of timeline doesn't reflect the urgency of the problem.
Mr. Nunn. I want to thank the panel. I think the key
takeaway here is that we have so much innate capability here in
the United States ready to be leveraged, the innovation alone
to be able to bring to the battlefield to make a time-changing
success, not only in loss of life, but in the scale of capacity
to be first shooter successful, and yet, we are making our own
restrictions on this. Eighteen months is a kind example. I have
guys who are waiting years to be able to onramp this. DPA is a
great opportunity for us to be able to leverage this. Thank you
to the panel. I yield back the remainder of my time.
Chairman Luetkemeyer. The gentleman yields back. With that,
we go to the ranking member of the Full Committee, the
gentlelady from California, Ms. Waters, for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman. This is to
Dr. Tucker. In a bipartisan way, this committee has repeatedly
discussed the issue of the supply of essential rare earth
elements and critical materials. Most of these are in the
control of the Chinese Government and Chinese Government-
controlled companies. That is the key reason why so many
Members on both sides of the aisle applauded President Biden's
Executive Order and the Executive Order from the previous
Administration also to expand the DPA to address defense
industrial base capacity shortfalls in items such as batteries,
castings and forgings, critical minerals extraction, and rare
earth processing. Can you speak to the effects of this
expansion in light of China's dominance in this space and what
it means for our national defense?
Mr. Tucker. Absolutely. China, depending on the material in
question, controls upwards of 90 percent, and even, in some
cases, has near total monopoly of some of these critical
minerals and critical rare earth materials. So, the United
States is very far behind them at this point. DPA is a crucial
tool in the U.S. Government's toolbox to try to make patches
where the private markets, where the private financial sector
is not going. And so, President Biden has used DPA for critical
minerals. The Trump Administration did as well in terms of
inputs for batteries. So, this has been a bipartisan priority
to try to identify those industries of the future that are
going to be really important to our energy resilience going
forward.
Ms. Waters. I think that is a good point to identify what
the use is going to be for the future, but I am interested in,
if we are not able to have the minerals that need to be
extracted, what do we do?
Mr. Tucker. It is a great question. Several of the
panelists here have mentioned permitting and other hurdles such
as that. The DPA has a lot of authorities to allow the
Executive Branch to get over some of those permitting hurdles
when those become really tight constraints, so that could be
used in a variety of ways to have environmentally-sustainable,
worker-friendly mining in the United States.
Ms. Waters. I don't know what the relationship is in terms
of these minerals between China and the United States, but does
China have the ability or even the thought that they would
preclude us from having access, not even purchase, in order to
hurt us?
Mr. Tucker. We have certainly seen China do that with a
variety of its trading partners, that, whenever other countries
start to suggest that China behave more responsibly, they
weaponize the use of their own supply chains to deny inputs to
other countries, which is why it is a key, not only national
security, but energy security and economic security imperative,
for the United States to diversify away from that single
source.
Ms. Waters. This is an unfair question, but how do we
retaliate?
Mr. Tucker. By using the DPA effectively and efficiently,
and by giving it more money so that it can do more of its good
work.
Ms. Waters. So, you see this as a real national security
concern?
Mr. Tucker. Absolutely, and so have members of this
committee and Members of Congress going back to at least the
1970s, if not the 1940s. So absolutely, it is a key national
security concern.
Ms. Waters. Thank you for being here with this testimony
today, and I yield back the balance of my time.
Chairman Luetkemeyer. The gentlelady yields back, and with
that, we are out of questioners today, so we would like to
thank our witnesses for being here today. You gentlemen did a
great job, and we appreciate your expertise and you sharing
your knowledge with us today. You have given us a lot of ideas
on things we need to do. Hopefully, you will be able to, again,
help us as we go through the process of trying to find ways to
improve this. The DPA is an important tool in the toolbox for
the Defense Department and the President to be able to address
needs as they come up, as well as to be able to have the
foresight to understand what the needs may be in the future.
And so, if you can help us with that, we would certainly
appreciate it.
I have a letter here from the AFP Foundation with regards
to oversight that I would like to enter into the record,
without objection.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
I will ask our witnesses to please respond as promptly as
you can.
And with that, the hearing is adjourned.
[Whereupon, at 11:25 a.m., the hearing was adjourned.]
A P P E N D I X
March 12, 2024
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]