▶ 0:16:38Chair Scott: Good morning. I've called this committee meeting to order. I will start this conversation on defense production by highlighting that this act is a vital tool for protecting the american people and securing the economic foundations of our national defense. It was started during the early days of the cold war to ensure the united states could rapidly scale up defense capacity in times of national emergency.
▶ 0:17:05Chair Scott: Over the past 70 years it has stood the test of time empowering presidents to respond to urgent security need with decisive action. The world has changed dramatically since the dpa was first signed into law. The threats we face today are more complex and more economically driven than ever before.
▶ 0:17:28Chair Scott: Threats from adversaries weaponizing supply chains to our dangerous overreliance on foreign sources for critical minerals, pharmaceuticals, defense components. The dpa gives us the authority to meet these challenges head-on and as chairman of this committee I believe ensuring dpa remains a focused and agile authority to support national security and national emergency response is among our committee's highest priorities and responsibilities.
▶ 0:17:57Chair Scott: The standing rules of the senate provide this committee with jurisdiction over the defense production and economic stabilization. As we consider improvements to this act we have an opportunity to ensure the law continues to support american resilience in the years to come. That means keeping the dpa tightly tailored to the purposes for which it was created. Defense production, emergency preparedness, the protection of critical domestic supply chains.
▶ 0:18:27Chair Scott: We must ensure the dpa supports our defense industrial base. That includes investments in manufacturing and advanced technologies that enable our war fighters to deter threats.
▶ 0:18:42Chair Scott: It is also important to secure economic supply lines critical to our national interests, whether that is from domestic mining and processing of rare earth elements to building out second circuit judge capabilities for antibiotics and essential pharmaceuticals which are overwhelmingly sourced overseas today. The covid 19 pandemic reminded us in stark terms that we cannot rely on foreign nations like china to outsource the production of life-saving medicine.
▶ 0:19:12Chair Scott: The dpa has also helped americans and moments of national emergency, including supporting disaster relief efforts and ramping up production of ppe during covid. These are the kinds of uses that fall squarely within the original mission. It is no coincidence the america first agenda has prominently featured the dpa in its approach to national security and independence.
▶ 0:19:44Chair Scott: President trump's executive order on critical minerals recognized long-term security means reducing dependence on rivals for resources we need to defend our homeland and grow our economy. That may close by thanking our witnesses for being with us today and providing the insights that are necessary. Your testimony will help inform this committee's work as we move towards a responsible reauthorization of the dpa.
▶ 0:20:11Chair Scott: If we remain focused and principled we can ensure the dpa continues to protect the american people, bolster our defense readiness, and secure our strategic supply chains for decades. Ranking member warren?
▶ 0:20:24Sen. Warren: Thank you, Mr. chairman and thank you for holding today's hearing on the defense production act. I appreciate working together on this in a bipartisan way. For 75 years the defense production act has been the cornerstone of our efforts to build a more robust industrial base and advance our national defense.
▶ 0:20:47Sen. Warren: Congress passed the dpa in 1950 and president truman rapidly deployed it to help our country mobilize for the korean war. Throughout the cold war we use the dpa to mobilize the nation's industrial might.
▶ 0:21:04Sen. Warren: During the 1980's and 1990's we used the dpa deceit investments in key technologies like microelectronics and medical electronics that enhanced our war fighting capabilities and our technological edge. When hurricane katrina devastated the gulf coast, we used the dpa to speed up the distribution of fuel to the disaster zone.
▶ 0:21:29Sen. Warren: During the early days of the covid-19 pandemic the trump administration used the dpa to fast-track production of defibrillators and masks and other medical equipment. When the people's republic of china threatened to cut out our access to critical minerals, the dpa to jumpstart critical mineral production in the united states.
▶ 0:21:53Sen. Warren: In the toolkit of economic and national security tools, the dpa is among the oldest and it is absolutely essential to the challenges our country faces today and into the future. For decades our nation offshore jobs and industries. We failed to invest in growing competitive markets in critical industries here at home.
▶ 0:22:17Sen. Warren: We let big corporations grow, crush competition, and pursue short-term profits, even when it meant depriving us of good paying jobs come of undermining our technological edge, and eroding our industrial base. The results speak for themselves. Today we have more fragile supply chains and are more dependent on foreign countries than at any point in modern american history. A few examples.
▶ 0:22:48Sen. Warren: In 1990 we made 37% of the worlds chips. Today we make 12%. In 1986 we had U.S. flagged oceangoing vessels -- today we have 80. Because of off shoring by big pharma nine out of every 10 prescriptions filled in the united states was manufactured overseas. This leaves us dangerously vulnerable.
▶ 0:23:17Sen. Warren: It takes one major disruption -- a fire in a factory halfway around the world. A war between two foreign countries or a national disaster abroad or at home to cause massive supply chain disruptions. In 2021 a drought in taiwan and severe weather in texas led to a global semiconductor shortage that shut down production lines across the united states.
▶ 0:23:47Sen. Warren: Experts estimate this single disruption cost the united states economy $240 billion in one year alone. A similar disruption in the supply chain for life-saving drugs and antibiotics could be economically devastating and cost american lives. As we struggle, the people's republic of china moves forward.
▶ 0:24:17Sen. Warren: China has used nonmarket policies and practices to capture crucial industries like semiconductors, batteries, and pharmaceuticals. Industries we once dominated. China is also using its leverage of her critical supply change to exert more influence internationally. In recent months the chinese government has implement advance on the export of critical minerals, rare-earth magnets to the united states in response to president trump's tariffs.
▶ 0:24:47Sen. Warren: And even told country like south korea that rely on chinese inputs that they must stop exporting critical minerals and equipment to some U.S. companies. We do not need tricks. We have the tools to reassure critical supply chains. We can deepen cooperation with our allies and we can build resilience at home. One tool to help us do that is the defense production act, which we must reauthorize before it lapses in september.
▶ 0:25:19Sen. Warren: Mr. chairman, I appreciate your holding this hearing and I'm eager to work with you on these critical issues.
▶ 0:25:25Chair Scott: Thank you very much. We turn to our witnesses. The first will be Ms. mckinsey lyon, vice president for internal affairs at protection with -- at perpetua resources. You are now recognized for five minutes.
▶ 0:25:44Ms. Lyon: Good morning. Thank you for this opportunity. My name is mckinsey lyon, I am vice president of external affairs for perpetua resources. I am here today to share the story of a project located in the heart of central idaho and designed to return to and restore an abandoned mining site and responsibly produce gold and a critical mineral.
▶ 0:26:13Ms. Lyon: I hope to share with you how the defense production act has successfully saved america's only reserve of antimony. Over the past two decades china has invested more than $57 billion in controlling critical mineral supply chains around the globe. Today the majority of U.S. defense materials are reliant on chinese minerals like antimony, gallium, and tungsten.
▶ 0:26:43Ms. Lyon: China is wielding this dominance as leverage and has formerly cut off all exports of antimony of, gallium, tungsten to the united states, wounding our defense readiness and manufacturing capabilities.
▶ 0:27:00Ms. Lyon: Yet with the american defense industrial base turned to american miners to fill the gap, we are hobbled out of the starting gate with a between nine year average from identifying a mineral resource to getting it out of the ground. Put it simply, we are dangerously reliant and we are behind. Antimony is a great example. We have no domestically mind source of antimony.
▶ 0:27:30Ms. Lyon: Today china and russia control 90% of the global supply. It is critical to our energy technology and defense readiness. In addition to numerous commercial applications, the department of defense uses a specialized form, antimony try sulfide as a key not replaceable component in hundreds of munition types.
▶ 0:27:55Ms. Lyon: In 2021 china informally stopped shipping our sole source of military grade antimony trisulfi de to the united states. This is the context for our dpa award to revive the mining district. The story is not new. On the people of world war ii the japanese blockade in the pacific an invasion of china blocked the american supply of tungsten and antimony we needed for the war effort.
▶ 0:28:27Ms. Lyon: Through the U.S. strategic materials program, a precursor to dpa, the government enabled the mind to supply both antimony and tungsten for the allied war effort. The men and women of idaho are credited with shortening world war ii by a year, saving one million american lives. That is how important it is to access these minerals in our backyard.
▶ 0:28:52Ms. Lyon: Today it is one of the largest resources of antimony not controlled by the chinese but the site was abandoned. In 2010 our companies that with a vision that we could redevelop the mind for gold and antimony while providing comprehensive environmental restoration to the abandoned site. In 2022 we were 12 years on end $300 million in and facing another permitting delay.
▶ 0:29:20Ms. Lyon: As a single asset company entirely reliant on private investment the market was exhausted by delay. We're almost out of funds and running out of options that would not stall development. These are the moments the defense production act was created for. An open solicitation under dpa was our lifeline.
▶ 0:29:40Ms. Lyon: China had just stopped shipping antimony to american defense manufacturers and thankfully the leader of the army arsenal, the industrial-based policy office coming the air force contracting team acted with urgency to bring us into the program. It has since invested $59 million. That $59 million kept our permitting process on track and as of this week we have earned all of our federal permits.
▶ 0:30:07Ms. Lyon: It attracted an additional $54 million in private investment, giving hope to the market and put us on the precipice of a tube lyon dollar investment in rural idaho, meaning hundreds of jobs and more than half of the billion dollars -- with all federal permits in hand we could sit or a dpa success story.
▶ 0:30:28Ms. Lyon: Dpa's effectiveness is due to its agility to meet industry where its needs are, whether to advance these ability studies, expand processing and manufacturing capabilities or provide certainty, dpa needs to step in whether private market cannot. America's excellence is rooted in innovation and hard work. Dpa is a powerful tool to supercharge this excellence.
▶ 0:30:54Ms. Lyon: It is the temporary scaffolding american businesses need to be resilient in hard time so we can respond to our nation's needs. Mr. chairman, ranking member, thank you for your leadership on this issue and I look forward to this discussion.
▶ 0:31:07Chair Scott: Next we will hear from Mr. jared brown, executive director of global shield. You have five minutes as well.
▶ 0:31:16Mr. Brown: Thank you and good morning chairman scott, ranking member warren come in distinguished members of the committee. I am honored to testify on the importance of the defense production act to our national security and defense. My name is jared brown and I am the cofounder and executive director of global shield. We are a nonprofit organization dedicated to helping the nation manage global catastrophic risk.
▶ 0:31:42Mr. Brown: Global catastrophic threats are the very worst prices sees our nation conveys -- the very worst crisis our nations can face and range from nuclear war to global pandemics and pose the risk of trillions of dollars in economic damage and millions of lives lost. These threats are so concerning congress passed the global catastrophic risk management act into law into 2022 to help prepare the U.S. for these threats.
▶ 0:32:08Mr. Brown: The dpa is a core instrument of the nation's preparedness for in response to global catastrophic risk. As you are aware of dpa title insured government is given priority access to products and services that are necessary in a time of crisis. Dpa's title iii and authorities help ensure we have adequate supply of those products and services in a time of need.
▶ 0:32:35Mr. Brown: In the context you are planning for and responding to catastrophes abroad and at home I would like to make three key points about the future ready dpa. First, it is not an exaggeration to say that dealing with any worst-case scenario you can imagine depends in part on dpa authorities.
▶ 0:32:57Mr. Brown: A major global military conflict , a pandemic killing millions of americans, a terrorist use of a chemical or biological weapon in a U.S. city or a catastrophic hurricane or earthquake. All of our plans include the use of authorities under this act. For every national security crisis that keeps policymakers up at night the dpa is an indispensable tool for saving american lives.
▶ 0:33:28Mr. Brown: Therefore we urge congress to reauthorize and modernize these authorities this year. Second, even though our government agencies know how critical dpa authorities are in catastrophic scenarios, our plans for using the authorities are often based on unrealistic expectations about the private sector.
▶ 0:33:47Mr. Brown: Often the government is planning says in effect if we have a shortage of this good or need more of this service, we will use the dpa authority and hope the private sector can respond. However, just because the government has the authority to order the production of a good does not mean the private sector can magically summon up that service.
▶ 0:34:13Mr. Brown: Therefore, government agencies must work more closely with industries and service providers to better understand their true capabilities ahead of a crisis. We recommend you reauthorize and modernize the dpa title vii authority so that dumb government agencies -- so that government agencies can improve plans, anticipate problems, and so that government agencies can deploy private-sector experts into government during a crisis.
▶ 0:34:45Mr. Brown: Third, since the end of the cold war oversight and coordination in the dpa inside the executive branch has atrophied. Congress has made numerous attempts to revitalize good governance inside the executive branch through past three authorizations of the dpa, including with the creation of new interagency dpa committee, also known as the deepak. These reforms have not been successful.
▶ 0:35:14Mr. Brown: What makes the situation worse is the private industry and supply chains are vastly more complicated and sophisticated than they were in 1950. In turn, this makes the government plans for using the dpa to manage extreme risk even more complex. To help address this problem, we recommend congress improve the transparency and governance of the dpa under title vii.
▶ 0:35:42Mr. Brown: It will benefit the nation both before and during a crisis if the private sector and policymakers are more aware of how the government plans to use dpa authority during a real catastrophe. Thank you again, committee, for your attention to this important dpa authority and for its use in safeguarding america. With that I look forward to your question and supporting future reauthorization efforts.
▶ 0:36:08Chair Scott: Next we will hear from Dr. john mcginn, executive director for the baroni center of government contracting at george mason university.
▶ 0:36:20Dr. Mcginn: Thank you for the opportunity to speak with you today. I run the center for government contracting at george mason use a diversity -- at george mason university. For my opening statement I want to focus on how we can strengthen dpa for the future.
▶ 0:36:47Dr. Mcginn: As you both outlined dpa gives the president brought authority to ensure timely availability of essential domestic industrial capabilities. As I describe in my written testimony there are three active, title I, title iii, and title vii. While the authority is strong overall there are opportunities for strengthening or revitalizing authorities.
▶ 0:37:11Dr. Mcginn: First of all I recommend that is essential to keep dpa firmly focused on defense and national security issues come in particular threats from our critical competitor china. Using dpa outside of direct national security or national emergency purposes threatens the viability of this unique tool of our industrial base.
▶ 0:37:36Dr. Mcginn: Dpa title I is focused on the distribution and allocation of goods and services and has been used to prioritize the contracts of many key defense systems for decades and was also used to great effect during the covid-19 crisis, getting over $3 billion in contract for the production of ventilators and protective personal equipment. At the national level the dpa is governed by old and overlapping executive orders spanning several administrations.
▶ 0:38:07Dr. Mcginn: The trump administration should conduct a thorough review to better orient dpa policies and practices for today's challenges. Dpa title iii. Title iii is a tremendous tool for building industrial capacity through grants, loans, purchases, and purchase commitments.
▶ 0:38:28Dr. Mcginn: Two examples of recent impacts include $1 billion appropriated during covid through the cares act for pandemic response as well as other industrial-based needs and in 2023 over $500 million was appropriated for projects in areas such as specialty chemicals, hypersonic, microelectronics packaging, critical minerals, and motors. Title iii could be significantly strengthened in three ways.
▶ 0:38:58Dr. Mcginn: Number one, removing the requirement that the president sign each dpa determination, which greatly reduces and slows the process through which dpa projects are developed and executed. Two, enabling the use of purchase commitments to create a guaranteed demand signal over time for industrial capabilities such as critical minerals. These agreements will do that.
▶ 0:39:28Dr. Mcginn: Finally to raise the dpa fund ceiling which is currently at $750 million to enable the use of purchase commitments and other title iii investments. Title vii has several components including industrial base assessments, voluntary agreements, and it governs the committee on foreign investment in the united states or cfius.
▶ 0:39:55Dr. Mcginn: Title vii can be strengthened by three areas, two of which have to do with sections of title vii that have been scarcely used since the cold war. First is section 708 which permits the government to establish voluntary agreements between government and industry in specific sectors such as critical minerals that would be -- as we noted in a recent report on title vii, increasing the use of these voluntary agreements is a critical way to increase overall industrial capacity.
▶ 0:40:27Dr. Mcginn: Section 710 enables the establishment of a cadre of industry executives to be trained for government service in the event of a national emergency. This national defense executive reserve authority has not been active since the end of the cold war and we would need to develop a new model for how to use the national defense executive deserve -- national defense executive reserve in the future.
▶ 0:40:52Dr. Mcginn: The 2018 risk review modernization act which congress kindly passed and the president signed modernized cfius to address concerns, principally for china. There's always room to improve this authority. I look forward to their consideration by congress.
▶ 0:41:17Dr. Mcginn: Dpa is a critical presidential authority designed to explicitly address industrial issues we face today. It has been reauthorized 53 times, and in the most recent cases has been extended five or six years. It is vital congress reauthorize dpa and it is incredibly hard to hear -- it is incredibly heartening to hear you are all committed to do so. I recommend you work to complete a long-term reauthorization this year if at all possible.
▶ 0:41:47Dr. Mcginn: Thank you for your time and I look forward to your questions.
▶ 0:41:50Chair Scott: Lastly we have Dr. rush doshi, c.v. Starr senior fellow on the council foreign relations will step you are recognized for five minutes.
▶ 0:42:07Dr. Doshi: Thank you for the opportunity to testify today on the defense production act. China is an ambitious and formidable competitor. Second, the united states needs the dpa to cope with the military and nonmilitary challenges china poses. Their system has far broader authorities than the dpa and for smart reforms the dpa can address concerns about overuse without narrowing its scope. I will now discuss each of these .
▶ 0:42:35Dr. Doshi: China has grand strategy to displace and catch up and surpass the U.S. technology and make the role dependent on chinese supply chains and acquire the capability to defeat U.S. forces militarily. It is now 130% of U.S. gdp by purchasing power, two times the U.S. share of global manufacturing and two times U.S. power generation. Without dpa reauthorization we cannot address china's military nonmilitary threats.
▶ 0:43:04Dr. Doshi: Beijing is undertaking the fastest military buildup in its history and now boasts 200 times our shipbuilding capacity, 80% of global drone production and global leadership in hypersonic's. It will add vessels to its navy which will be 50% larger than ours. In a conflict with china we would expand our most critical munitions within about a week. We also are to get nonmilitary challenges. One is a new era of cyber warfare.
▶ 0:43:32Dr. Doshi: Beijing is planning cyber attacks across sectors like power, water, telecom come in transportation which would affect the lives of tens of millions of americans. Another challenge is a new era of geo-economic warfare, beijing is leveraging its chokehold to throttle american manufacturing in the current trade war. In antibiotics it has a 90% market concentration denying americans access.
▶ 0:44:02Dr. Doshi: Dpa title iii confront new production lines for cruise missiles and unaccrued systems and expand shipyard capacity. Dpa title vii can help us to find an pierced threat vectors in our networks and critical dependencies in our supply chain . Title I and title iii can help us reallocate goods or boost production after a debilitating cyber or supply chain attacked.
▶ 0:44:28Dr. Doshi: Failing to extend the dpa ordinarily reauthorizing it to focus exclusively on defense would risk leaving us dangerously exposed and deprives president trump of the tool he needs to win the current trade war and undermines his executive order on critical minerals which is grounded in dpa authorities and makes it harder for us to deal with cyber attacks and supply chain shocks and it makes of future operation warp speed all but impossible. It also overlooks history.
▶ 0:44:54Dr. Doshi: When congress passed the dpa and modeled after the war powers active 1941 in 1942 those acts recognized that defense and civil economies blur. China's defense production authorities exceed our open. The system is deprived of its national defense mobilization law, its emergency response law and various ad hoc measures.
▶ 0:45:19Dr. Doshi: It leaker requires all prc citizens to fully support defense mobilization. The prc has total power to reassign personnel. It also maintains a detailed registry of mobilization assets. Americans would rightly reject this system which is far more coercive than our own.
▶ 0:45:42Dr. Doshi: We also recognize that china system might move more effectively against us in a crisis or conflict and we should be wary of scaling back our system which has served us for 70 years prematurely. We can reform dpa without narrowing its scope. Instead of narrowing the dpa, congress should consider upgrading the definition of national defense as it has many times in years past, this time by providing relevant domains, threats, justifications for invoking dpa.
▶ 0:46:12Dr. Doshi: That could keep dpa flexible without making a catchall tool. Congress should allow dpa title iii investments and allied nations that support the defense industrial base. China out scales the united states today but the U.S. and its allies out scale china if we work together. Congress should establish multiyear dpa funds and establish funding for key national security priorities like missile production and rare earth processing as we've already discussed.
▶ 0:46:40Dr. Doshi: Congress and appropriate funds and encourage agencies to reactivate the now dormant national defense executive deserve originally established under dpa title vii to ensure a pool of industrial experts available in a crisis. Since 1950's congress has reauthorized or extended dpa more than 50 times. It is critical to do so again. I thank you for your time and I look forward to your questions.
▶ 0:47:03Chair Scott: Thank you very much. We will first have a questions come from senator moreno who will take my spot.
▶ 0:47:13Sen. Moreno: Thank you for having this very important session. It is something that is long overdue. I will start with you, Dr. mcginn, you talked about cfius. It plays a critical role in reviewing inbound foreign investments. President trump recognized a glaring loophole in the law which does not cover greenfield investments.
▶ 0:47:39Sen. Moreno: Rather only allows cfius review acquisitions of existing U.S. companies. I introduced a bipartisan bill called the protect act with my colleagues elissa slotkin to ensure all transactions from foreign countries are reviewable by cfius. Do you believe this would be helpful to better protect our national security from harmful or threatening investments by foreign countries?
▶ 0:48:06Dr. Mcginn: Thank you for the question. Cfius is an incredibly powerful tool for our government to protect national security interests. Greenfield investments have long been not part of cfius because cfius looks at individual business transactions but it is the job of the senate to consider adding that as a potential thing that should be covered under cfius and I look
▶ 0:48:38Dr. Mcginn: Forward to the conversations you will have an deliberations on that and working with the agencies to see the practical ramifications of that and what power that will be.
▶ 0:48:50Sen. Moreno: Would love to have you take a look at the bill if you have not already done it. It is a rare bipartisan bill and hopefully we can get that done. I understand the dpa fund which is helped by treasury but managed by the department of defense used to be managed at an air force research laboratory housed at a place called the wright-patterson air force base in dayton, ohio.
▶ 0:49:14Sen. Moreno: Over the last two years the pentagon moved to the management of the fund out of ohio and centralized it under a new management structure called the defense priorities allocation system. Concern this new system does not adequately follow established contracting best practices. Could you talk about dpas system shortcoming and contrast them to the phenomenal world class perfection management system in ohio? Not biased at all, to be clear.
▶ 0:49:48Dr. Mcginn: The air force is currently the executive agent for the conduct of the defense production act title iii projects. They have delegated further to the air force research lab to deal with contract and execution of title iii projects. That is still the case. The dpa fund is managed by the department of defense.
▶ 0:50:14Dr. Mcginn: I was not aware -- that is not managed -- but by the office of the secretary of defense. There is not been of movement of that degree but I have worked with the personnel at wright-patterson when I was in government and they are phenomenal and continue to do phenomenal work.
▶ 0:50:36Sen. Moreno: They moved to the functions out which -- it makes sense to have all of that together. It makes a lot of efficiencies. I do not want to keep picking on you for questions but we will keep it going.
▶ 0:50:51Sen. Moreno: I am concerned that over the last administration the dpa powers were pasteurized -- work bastardized and expanded beyond congressional intention in areas like green energy which is clearly a political move.
▶ 0:51:12Sen. Moreno: Why is it important for dpa to remain its focus on national defense in a nonpartisan way and what dangers could arise if it does not to fortify political positions rather than national security positions?
▶ 0:51:24Dr. Mcginn: Great question. I would say as we have seen clearly in this hearing, dpa is a bipartisan supported authority and it works best when it focuses on those bipartisan interest areas. The real priority areas for dpa have traditionally been defense or true national emergency efforts.
▶ 0:51:51Dr. Mcginn: When dpa is used in other ways, such as what you were referring to, it can become politically charged. The dpa becomes politically charged, that is always really bad. Some of the things we live with today, for instance the cap on the dpa fund of $750 million as a result of her previous reauthorization of the dpa where projects were done that were not agreed with politically that then lead to the reauthorization
▶ 0:52:22Dr. Mcginn: To put more structure -- more strictures around dpa. It is imperative to keep dpa focused on clear bipartisan focused efforts and if there are priorities in other areas there can be other means to deliver those kind of legislative efforts.
▶ 0:52:41Sen. Moreno: High-yield. -- I yield. I think it is important as we discussed dpa it becomes a political and it is about protecting our country and not getting into political priorities and using funds that way.
▶ 0:52:58Chair Scott: Ranking member warren, you are next.
▶ 0:53:01Sen. Warren: I disagree with the president's disastrous approach to worldwide tariffs. He is because of economic chaos and uncertainty hurting workers and working families and small businesses all around this country. If he continues his giant game of on-again off-again tariffs he will push our country into a recession. Tariff reform is badly needed.
▶ 0:53:29Sen. Warren: The mantra embraced for decades by many democrats and republicans alike that free trade with china would somehow work to our favor was flatly wrong. Those policies, combined with china's aggressive trade practices have cost millions of americans their jobs. They have also undercut our economic national security.
▶ 0:53:53Sen. Warren: Beijing is increasingly using its significant leverage over critical supply chains to exert influence around the world while the united states stands by. During the biden administration the p.r.c. Restricted the export of several critical minerals. Gallium, graphite, and too many comic -- and committee -- antimony in response to U.S. export controls.
▶ 0:54:22Sen. Warren: In the trump administration the p.r.c. Has come of access to several more critical minerals. Mr. joshi, he worked on china policy in the national security council and you see the importance of china's leverage on national supply chains. How important is the defense production act to reassuring those critical chains and competing with china?
▶ 0:54:47Dr. Doshi: Thank you. It is essential. 30 years ago when china joined the wto united states was about 30% of global manufacturing. Today we are 17% in five years we might be 11%. As you mentioned in your opening , the defense production act is critical to expanding american industrial capacity. If we want to produce cruise missiles were ships we need dpa. If we want to search production after a attack we need dpa.
▶ 0:55:18Dr. Doshi: It is essential with china throttling american industry by going after rare earth and rare earth magnets president trump needs dpa to effectively negotiate with the p.r.c..
▶ 0:55:27Sen. Moreno: I agree with you --
▶ 0:55:30Sen. Warren: I agree with you on this. I do not support the president's trade work but I do think the president needs tools like the dpa to be able to stand up to xi jinping. We also need a strong dpa to protect our medical supply chains and protect us from persistent shortages of any generic drugs. We cannot defend our country if we cannot provide life-saving drugs to our service members and our citizens.
▶ 0:55:59Sen. Warren: According to the defense logistics agency, 27% of the dod pharmaceutical supply chains are considered very high risk. That is one in every four because they are dependent on china or an unknown source nobody can figure out. Another 27% -- that puts us well over half, is at high risk because they are dependent on non-trade agreement act compliant countries. Mr.
▶ 0:56:27Sen. Warren: Brown, we have become dangerously dependent on foreign countries for pharmaceuticals, including active pharmaceutical ingredients. How should be using the dpa two on drug manufacturing, address shortages, and build resilience?
▶ 0:56:49Mr. Brown: It is a great question and this has been an area of bipartisan consensus for many years. We have been using title iii funding from the dpa to help onshore critical capacity. The current administration is having a hearing and a roundtable this june with industry to further address this issue. You can imagine how much worse it could get if we were facing a mass casualty scenario in the homeland.
▶ 0:57:16Mr. Brown: To be clear, this is not just a foreign sourcing issue. We have had shortages of iv fluid following two hurricanes, first with hurricane maria and again with hurricane helene affecting manufacturing supply chains in the united states. The dpa is important not just for on shoring but enhancing the resilience of the supply chain here and abroad.
▶ 0:57:39Sen. Warren: I appreciate that and I appreciate you expanding our vision of what we are talking about. This risk is not theoretical, it could cost american lives. I've introduced multiple bills to try to reinvigorate drug manufacturing at home. It is clear we need to use every tool at our disposal to create resilience in the supply chains.
▶ 0:58:04Sen. Warren: I want to thank all of our witnesses for being here and helping us understand the importance of using the dpa to protect national defense. Thank you.
▶ 0:58:14Chair Scott: Ms. lyon, use critical minerals across our supply chain. The united states is home to many of these minerals, however it challenging and capital-intensive to open or expand mining facilities in the united states. During your testimony it seemed to me the government creates a problem and we want to solve the problem through financing.
▶ 0:58:44Chair Scott: It seems if we could eliminate the problem of permitting we would not have the problem of financing, we would then have other options available later. Can you talk to me about that?
▶ 0:58:52Ms. Lyon: Thank you for the question. You are right we have a problem of the left hand of government not always knowing what the right hand needs. Part of the value for us at the defense production act is when we were six years into our permitting process for which we were spending an average of $2 million a month to get through as a single asset company, we were stuck.
▶ 0:59:23Ms. Lyon: It was hard to figure out how to get our federal agencies to even talk to each other, to coordinate, to come to an agreed set of milestone expectations, but receiving the award sent the signal across the federal family that this had to be a priority. That we needed our agencies to work together to solve a problem.
▶ 0:59:51Ms. Lyon: I will say that working with the defense department was a refreshing experience of people when confronted with a problem our mission driven to find a solution. That mentality absolutely helped us get to where we are today and but for that coordination and accountability and transparency I do not think we would be.
▶ 1:00:20Chair Scott: However, the 29 years -- that is older than my staffers back here. 29 years to open a mine is not frustrating but infuriating.
▶ 1:00:44Chair Scott: That alone should provide an opportunity for us to talk about talking across lines and solving that one simple problem that will be persistent for many years if we do not fix that one issue.
▶ 1:00:58Ms. Lyon: Yes. That 29 year time frame is the second-longest in the world, second only to zambia. I have full faith in this country's ability to do great things but this is not one of them right now. We have the right environmental standards, we have right public transparency in our process, but we need to focus on how to make it a more coordinated process.
▶ 1:01:24Ms. Lyon: We are returning to an abandoned site come a site that is in real trouble environmentally we have offered to clean it up and yet -- we have a critical mineral that is important for our strategic defense -- our timeframe will not between nine years, but it will be at least 18 -- will not be 29 years but is at least 18.
▶ 1:01:43Chair Scott: I want to keep myself to the same five minutes I require of everybody else. Dr. joshi -- Dr. doshi, you talked about cyber defense. I think of huawei, space, pharmaceuticals. Talk to me about the need to define and perhaps expand the definition of national defense.
▶ 1:02:11Dr. Doshi: Thank you very much. We have had to redefine national defense at least four times. Either we have to do so again to consider some of the challenges posed to us. Supply chain attacks can occur in areas outside pharma and critical minerals. Cyber attacks can have implications for the wider country beyond the loss of a piece of infrastructure. Expanding the definition could be done in multiple ways.
▶ 1:02:40Dr. Doshi: One way is to list out scenarios we want to plan against, the other is to list domains in the past like space. Another would be to offer justifications if this dpa can be activated which should allow us to address some of the concerns senator moreno raised about the excessive use of dpa. My answer would be definition can help people.
▶ 1:03:02Chair Scott: Thank you. I will return my 15 seconds. >> Mr. brown, I wanted to start with you and bill off on some of what was talked about. The strategic pharmaceutical reserve was created as a pharmaceutical equivalent to the strategic petroleum reserve to reduce supply disruptions of key pharmaceutical ingredients.
▶ 1:03:29Chair Scott: Instead of financing it to maintain two years worth of supply and incentivizing private industry incorporated into a means to weed off reliance on overseas supply. It is sitting in the single digits. I just want to ask you are there ways we can use the dpa to more effectively leverage this reserve to reduce supply chain disruptions and drug shortages in the short term?
▶ 1:03:56Mr. Brown: I think this is an important point of how we can modernize and even look at what we used to use the dpa for, which is for stockpiling and reserves. As you mentioned the strategic petroleum reserve was also authorized under the dpa.
▶ 1:04:15Mr. Brown: As congress looks ahead to a possible reauthorization and modernization of the act, I think this is one of those subject that could be looked at with an eye towards how we handle the cold war with future 21st-century threats in mind. I will also add that as has been mentioned by my colleague, there is some discussion around the cap on the dpa title iii fund.
▶ 1:04:39Mr. Brown: This is largely an appropriations and budgeting issue and so working closely with the appropriators on this issue is important.
▶ 1:04:49Sen. Kim: Thank you. Dr. doshi, I wanted to talk about how critical biotech is for innovation competitiveness and our defense related products. Dod launched the bio industrial manufacturing program last year which supports private industry and develops commercial scale facilities that fortify defense supply chains.
▶ 1:05:15Sen. Kim: This targets high-risk components of the military supply chain that could be alternatively produced through bio many factoring such as rocket propellant, jet fuel, etc.. Without direction from dod the private sector will not build commercial scale bio manufacturing infrastructure for defense related products. I find this to be an important effort.
▶ 1:05:37Sen. Kim: I guess I wanted to ask you on this front, can you speak to why dpa funding for this is important, whether the administration and congress are doing what is necessary to ensure this continues?
▶ 1:05:51Ms. Lyon: -- Dr. doshi: I would start by saying title iii funding has been used and referenced earlier in the hearing to expand information critical to american national security. We use the dpa title iii in the past to stand up some of our semiconductor capacity and invest in new innovative industries. The same is true for biotechnology. You can imagine using dpa to expand capacity in this space.
▶ 1:06:20Ms. Lyon: The second point I would make his many of the inputs in the sector, whether animal models or enzymes or expensive equipment, a lot of that is imported from china. If there were escalation in the trade war you might need dpa title iii or title I to be able to ensure we can expand production of those critical inputs and prioritize contracts for government under title I. There's a lot of ways I think dpa is critical to supporting this sector which is now a central part of competition.
▶ 1:06:49Sen. Kim: We talked earlier about the challenges when it comes to critical minerals, especially vis-a-vis the prc and part of the reason the prc demand such a large share of the critical minerals market as they treat supply like a faucet, they turn it on, they flood the market, once a competitor is run out of the market they can turn the faucet down. Prices stabilizes. Utilizing market policies to be able to mobilize.
▶ 1:07:20Sen. Kim: It shows building new alliances is not enough -- building new mines is not enough, we need them to continue to operate when the p.r.c. Floods the market. Can you give an idea of how we can be using the dpa to counter these?
▶ 1:07:37Dr. Doshi: This is a critical point and we heard a little bit about this in the context of antimony which is a good case study of the restriction and the p.r.c.. Every time we get close to having our own production or our own stockpile of these kind of minerals, the p.r.c. Drops the price. That is where we need the dpa to prevent market mip elation.
▶ 1:08:02Sen. Kim: Ms. lyon, you agree with that?
▶ 1:08:07Ms. Lyon: Absolutely.
▶ 1:08:09Sen. Kim: Hopefully that is something we can hone in on and see the different ways it can be used. With that I will yell back.
▶ 1:08:16Chair Scott: Before we hear from senator ricketts I wanted to take this opportunity to say rachel's last hearing is today. Thank you for your service to the banking committee and we look forward to your success of the speaker of the house. I don't know why you want to go to the other side of the capital but stranger things have happened, I guess. You are amazing and we represent who you are and what you represent.
▶ 1:08:51Chair Scott: You will be missed. [applause] senator ricketts?
▶ 1:09:03Sen. Ricketts: Thank you chairman scott for holding this hearing. Thank you to all of our witnesses today to take the time to be able to talk to us about the important issues of the defense production act. Communist china poses the single greatest threat to our country the international forum.
▶ 1:09:27Sen. Ricketts: It is a threat to our nation economically, militarily, and we remain too reliant on communist china for essential inputs. We have seen what happens when the ccp decides to weaponize its control over key supply chains, cutting off exports and using state owned enterprises to undercut american producers. This is a vulnerability we cannot afford. You and I have had this conversation many times.
▶ 1:09:56Sen. Ricketts: I just spoke with secretary rubio in a hearing about what communist china can do as far as an energy blockade of taiwan. We are also discussing mineral supply chains around the world. If we are serious about this era of strategic competition we need to use every tool available to rebuild our domestic capabilities and reduce our reliance on communist china. Ms.
▶ 1:10:22Sen. Ricketts: Lyon, how much of your projects timeline were consumed with federal permitting process and how does that affect your ability to scale quickly in response to national security?
▶ 1:10:34Ms. Lyon: Thank you for the question. Overall in our 18 year timeframe from identifying the minerals getting them out of the ground should everything stay on track, about nine years was absorbed by the permitting process, which represents about a $400 million investment by the company.
▶ 1:10:59Sen. Ricketts: About nine years. So Mr. doshi, if there were to be a conflict with china over taiwan, how long do you think that would last? It is very hypothetical question. Will last nine years?
▶ 1:11:15Dr. Doshi: We need to move faster than nine years.
▶ 1:11:19Sen. Ricketts: Do believe current permitting timelines are compatible with the urgency of reducing our reliance on communist china for critical minerals like cobalt and antimony?
▶ 1:11:30Ms. Lyon: No.
▶ 1:11:32Sen. Ricketts: Your timeframe, when I was governor of nebraska we were joined to raise a levy around the air force base. You may know stratcom controls all of our nuclear weapons. The army corps took six years to get a permit to raise that levy two feet. I am guessing that was somewhat less complicated than what you were asking for in your permit.
▶ 1:11:58Sen. Ricketts: As we look to reauthorize the defense production act, what improvements would you recommend making to streamline the permitting timeline for dpa to support project mining?
▶ 1:12:13Ms. Lyon: One of the most important thing we can do is to make sure the left-hand government knows what the right needs. Having the department of defense coordinated and work with the permitting agencies to flag projects that are critical for prioritization is absolutely critical.
▶ 1:12:31Ms. Lyon: The recent addition of projects to the permitting counsel will absolutely benefit the long-term delivery of critical minerals to this country to provide transparency and accountability into the process, to make sure things are prioritized and stay on track.
▶ 1:12:46Sen. Ricketts: Dr. mcginn, can you weigh in on that too?
▶ 1:12:51Dr. Mcginn: Permitting is a major challenge as you outlined and Ms. lyon did. That would be a critical point of reform. You do not need to use the dpa authorization to do that. It is hindering our ability to build and rebuild critical mineral capacity in the united states.
▶ 1:13:20Sen. Ricketts: The dpa is a powerful tool but like any tool it can be misused or exploited. It makes little sense for the U.S. to poor taxpayer dollars in your supply chains only to have those funds benefit our adversaries. How does the dpa prevent companies with ties to foreign adversaries from receiving funding or contracts under the act?
▶ 1:13:44Dr. Mcginn: Under the act companies that are U.S.-based companies or companies based in canada or the u.k. And australia are permitted to compete for title iii projects. Under the contracting, companies have to be domiciled in one of those areas.
▶ 1:14:10Sen. Ricketts: Sen. ricketts: mie
▶ 1:14:16Sen. Ricketts: Sen. ricketts: min or are you the chairman, now? I'm going to go ahead and take a couple of extra minutes. [laughter]
▶ 1:14:23Mr. Brown: -- Dr. mcginn:
▶ 1:14:29Mr. Brown: -- Dr. mcginn, how rigorous is the foreign entity vetting process compared to traditional procedures in the supplement?
▶ 1:14:36Dr. Mcginn: It is under the same authority.
▶ 1:14:38Sen. Ricketts: It's all ability -- all pretty relative?
▶ 1:14:43Dr. Mcginn: It is distinct from our view on transactions, where you might look at ownership kind of, but all of the standard rules cited would go for title iii projects.
▶ 1:14:57Sen. Ricketts: So you think it is sufficient as is, is that accurate?
▶ 1:15:02Dr. Mcginn: I haven't seen any evidence that it's not.
▶ 1:15:05Sen. Ricketts: Mr. brown, can you weigh in on that? Making sure that foreign adversaries don't benefit from our taxpayer dollars?
▶ 1:15:13Mr. Brown: To the point earlier on your questioning about the right hand and the left hand, congress authorized an entity called the defense prevention act committee specifically so the left-hand and right-hand could negotiate discussions about these issues.
▶ 1:15:31Mr. Brown: That is one of the things that hasn't taken off like it should have under the executive branch and it needs the oom ofp congress in this reauthorization effort toh going on throughout interagency necessity.
▶ 1:15:51Sen. Ricketts: Great, thank you very much. Ranking member, have U.S. your questions? -- you asked your questions? >> first of all, thank you for the opportunity to visit with you today. We appreciate you coming into do this with us. We did a piece of legislation that was called a pass act. My question will begin with Dr. mcgann. As you know, there have been numerous reports of suspicious activity by U.S.
▶ 1:16:21Sen. Ricketts: Adversaries regarding cultural land purchases. I appreciate the work done over the last year to expand security review authority for foreign purchases of real estate near american military bases. I believe that the recent action to add a net total of 56 facilities across 30 stance to the sify us review list is an important first step and I think we will probably have to go farther than that.
▶ 1:16:51Sen. Ricketts: It is critical congress passed legislation, the pass act, that I introduced with senator cortez masto and to curtail purchs to curtail purchy to curtail purchr stated foreign adversaries near military bases. Dr. mcginn, I want to thank you for your testimony in support of this legislation in your testimony. How significant of a national security threat is china?
▶ 1:17:18Dr. Mcginn: China is our principal national security threat facing us today.
▶ 1:17:31Sen. Rounds: There are numerous examples where they tried to gather data or look at setting up facilities near sensitive sites within the united states.
▶ 1:17:43Dr. Mcginn: Correct, senator. When I was in the department of defense several years ago, there was a big turn in the mid to late 2010s when sify us transactions work principally from european or japanese-based countries and the like. To conduct that U.S.
▶ 1:18:14Dr. Mcginn: Transaction. It led to congress establishing firm a, modernizing in order to address these threats. Those transactions were closely monitored by the committee and continue to be so.
▶ 1:18:37Dr. Mcginn: I would encourage you to talk to the committee about the gaps they see in department of defense or treasury and how your legislation could potentially help them in the more that we can strengthen those assets geographically, the better.
▶ 1:19:00Sen. Rounds: Thank you. I appreciate the support on that legislation. Ms. lyon, south dakota in states like mine have resources that could reduce reliance on adversaries like china. Given the permitting challenges in price problems you've described, what steps would help make dpa more effective in companies trying to establish domestic processing capacity?
▶ 1:19:26Ms. Lyon: Thank you for the question, senator. Processing is absolutely the next link in the supply chain that we must be concerned about. It doesn't make sense to take all this effort to get minerals out of the ground to have to send them to china for processing. Antimony is an interesting case where china controls about 50 percent globally, 80 to 88% once you include secondary processing.
▶ 1:19:56Ms. Lyon: So, we have to figure out how to bring not only the mineral production home, but the processing as well. And it needs to happen in parallel. We've got a chicken and egg problem. It is it difficult for a new processing facility to be built and put on line if it doesn't know it has the minerals coming in the door. At the same time, once the minerals are ready, you cannot wait three years for the permitting and development of a processing facility.
▶ 1:20:23Ms. Lyon: Dpa can use its authorities to help these things occur in parallel with one another. That requires investment.
▶ 1:20:31Sen. Rounds: It's one of the most important reasons we need to move forward with reauthorization of dpa. On behalf of the chairman, I will recognize senator reed.
▶ 1:20:42Senator Reed: Thank you very much, senator rounds. The dpa was created to maintain our military and economic strength. President trump used it multiple times during the covid crisis to secure ventilated masks and so many other things.
▶ 1:21:03Senator Reed: Would you agree that the dpa is, does protect our economic strength and that that is sort of parallel with our national security strength?
▶ 1:21:14Dr. Mcginn: Senator, great to see you again, thank you for your question. The dpa, you know, is used for national defense and national emergency situations. Covid definitely kind of qualified in that situation. It was very effective in being used in that kind of way. You know, buy, buy, buy those actions, it does kind of help with economic security.
▶ 1:21:41Dr. Mcginn: Part of the problem overall with dpa, not a problem, but the reinvestment to bring that capacity, whether it be defense or commercial focus, many of these areas, like antimony, they have many more commercial uses. The key is how do we kind of use dpa to start the market, and how is that sustain? We can't keep investing taxpayer dollars to prop up industries.
▶ 1:22:10Dr. Mcginn: You know, it's beyond the initial investment in, you know, whatever is made. How do we make these economically viable capabilities in the united states?
▶ 1:22:20Sen. Reed: Thank you very much and thank you for your service. Dr. doshi, china is always on everyone's mind at the moment. Can you explain how china in particular or other adversaries have tried to weaken our national security through nonmilitary means and how the dpa acts as a counter to that?
▶ 1:22:44Dr. Doshi: Thank you for the question. I have two broad categories, but in the interest of time, one of them is the manipulation of markets. The reality is that the free market system is vulnerable and adversaries pour in money to manipulate prices because we are disciplined by the market. That is where dpa comes in. It can create capacity and voluntary agreements.
▶ 1:23:11Dr. Doshi: It can also allow us, as mentioned earlier I'm a to basically do purchase commitments or offtake for these companies, allowing us to solve some of the market problems adversaries engineer for us and that's why it's essential. The second category we should think more about is cyberattack on critical infrastructure triggering an effective disaster. That kind of disaster would require authorities to solve.
▶ 1:23:35Sen. Reed: I think you are exactly right. Most people assume the first stage of any future concept would be cyberattack's, disguised if they can disguise them, but they will be cyberattack's requiring us to respond. For the whole panel, beginning with Ms. lyon, but are the risks that we face if we don't -- what are the risks that we face if we don't optimize dpa extension?
▶ 1:24:04Ms. Lyon: In our case, the military wouldn't have access to the key component that allows 300 types of munitions to fire. Our war fighters would be in a situation where they don't know if their base equipment will work. We are completely reliant on our adversary for that material, but for the dpa.
▶ 1:24:27Sen. Reed: Mr. brown?
▶ 1:24:29Mr. Brown: As I said in my testimony, I genuinely cannot think of any really bad, dark day in american history that doesn't rely on the dpa to respond to. There isn't a scenario that I can genuinely imagine that keeps you up at night as the armed service ranking member about which the dpa wouldn't be used.
▶ 1:24:54Mr. Brown: Without reauthorizing this or at least replacing it with some other similar set of authorities, our catastrophic response plans are gutted.
▶ 1:25:01Chair Scott: Thank you Dr. mcginn?
▶ 1:25:04Dr. Mcginn: I concur with my colleagues 100%. The imperative to reauthorize dpa is very, very strong. We will not be able to effectively respond to, you saw the role that it had during the covid response. You saw the role that it had in rebuilding some capacity. If we don't have that tool, it makes it much, much more difficult.
▶ 1:25:28Sen. Reed: Thank you. Dr. doshi?
▶ 1:25:32Dr. Doshi: The need for it today is greater today as the threats we face are greater. We cannot reach shore or deal with natural disasters or cyber attacks without dpa.
▶ 1:25:42Sen. Reed: Thank you very much. Mr. chairman?
▶ 1:25:47Sen. Rounds: An excellent way to close the hearing. On behalf of the chairman, I would like to thank our witnesses for being here today. Some of you took time out of busy schedules to come and share your testimony with us and we appreciate your perspective on the defense production act. Thank you for your time. For the senators who wish to submit questions for the hearing record, those are due one week from today, june 5.
▶ 1:26:13Sen. Rounds: Our witnesses will have 45 days from that day to submit your responses to the questions for the record. Thank you to the committee, the committee is adjourned.