Defense Department To The U.S. Specialty Metals Industry: We Don’t Need You


Richard A. McCormack, Manufacturing and Technology News

The health and well being of the U.S. specialty metals industry is not important to the Department of Defense, according to DOD’s Strategic Materials Protection Board. Specialty metals are no different to DOD than materials such as plastic, rubber and glass, says the board in a report that is raising the ire of U.S. specialty metals industries. If the U.S. industry is not competitive, then there are plenty of reliable producers in Japan, Germany, France, Italy, Mexico, Brazil and Canada that can supply the U.S. military with most everything it needs, according to the Strategic Materials Protection Board.

The specialty metals industry has falsely made the claim that it is critical to national security, says the DOD board. “Reliable access does not always necessitate a domestic source,” says the Materials Board in the second sentence of its assessment of DOD’s relationship with the industry. “In fact, the Department wants to take full advantage of the competitive benefits offered by access to the best global suppliers; and to promote consistency and fairness in dealing with its allies, all the while assuring that an adequate industrial base is maintained to support defense needs.” As a result, DOD “sometimes may be dependent on reliable non-U.S. suppliers,” which is just as good as being dependent on reliable U.S. suppliers.

The Strategic Materials Board sounds like it holds great disdain for the U.S. steel and specialty metals industries. It says in its report from the meeting it held on December 12, 2008, that its “key finding” is that specialty metals “are not ‘materials critical to national security’ for which only a U.S. source should be used; and there is no national security reason for the Department to take action to ensure a long-term domestic supply of these specialty metals.”

In a January 2007 report prepared by the American Iron and Steel Institute, the Specialty Steel Industry of North America (SSINA), the Steel Manufacturers Association and the United Steelworkers union, the groups argued that the United States government has long recognized the importance of a strong metals industry to America’s national security. The U.S. industry is responsible for supplying high-tech metals and alloys used in nuclear submarines, Patriot and Stinger missiles, aircraft carriers, Bradley Fighting Vehicles, and virtually every military aircraft in production. “If we continue to lose our manufacturing base due to market-distorting foreign competition or U.S. economic policies that are hostile to domestic investment and U.S.-based manufacturing, it could become impossible to produce here; the U.S. military would lose its principal source of strategic metals; and we as a nation would become dangerously dependent upon unreliable foreign sources of supply,” said the study.

DOD doesn’t buy it. In an assessment of that report, the Strategic Materials Board said that while many U.S. military platforms use these metals “incorporation into a DOD system does not, by itself, make a material ‘critical to national security.’ If incorporation alone was sufficient, every type of material from plastic to rubber and glass would be a critical material. More discriminating criteria are needed to distinguish critical materials from the larger set of strategic materials.”

Specialty metals might be “strategic” and “may” require monitoring, but they do not require “a domestic source restriction,” says the DOD Materials Protection Board. If there are problems of supply during a “projected conflict, other risk mitigation options, like stockpiling, could represent an effective alternative” to assuring supply.

The specialty steel industry should stop claiming that its products are “critical” to national security, says the DOD board. The only way they could be considered “critical” is if the military was the primary market for their products, which it is not, and if there were problems associated with the security of supply, be they domestic or international.

“The Department of Defense does not dominate the market for specialty metals,” it points out. “Its active and full involvement and support is not necessary to sustain and shape the strategic direction of the market; and the risk of supply disruption is not significant. According to the SSINA, ‘defense applications account for less than 10 percent of revenues in specialty metals companies.’ Recent Defense Contract Management Agency analysis of certain metals found that DOD consumes less than 1 percent of total U.S. steel production; about 6 percent of U.S. aluminum production and between 8 and 19 percent of domestic titanium production….The health of the domestic specialty metals industry is, and will continue to be, determined by its ability to sell core commercial products to commercial customers.”

DOD seems to have forgotten who pays its bills. It says that there are plenty of reliable foreign suppliers of specialty metals and metal alloys, listing Japan, South Korea, Germany, India, Brazil, Mexico, Canada, Australia and the UK as places where there are reliable suppliers. It says there are plenty of reliable suppliers of titanium alloys in Japan, Italy and Germany. Few of these companies pay taxes to the federal government.

“We are in strong opposition to the findings of the report,” says Laurence Lasoff, an attorney with Kelley Drye, which is in charge of the Washington legal and lobbying activities of SSINA and a number of other metals trade associations. “We believe there is no legal basis for the conclusion that strategic materials are not critical because DOD is not the pre-eminent customer. There is no legal basis whatsoever for a definition of ‘critical’ based upon the fact that DOD has to be the principal customer.”

The Strategic Materials Board’s conclusions have those who were responsible for creating the board scratching their heads. Jeff Green, former staff director of the House Armed Services Committee who crafted the legislation that created the board with recently retired Committee Chairman Rep. Duncan Hunter, says that its conclusions represent a “fundamental failure to comply with congressional intent.” Green, now in charge of the J.A. Green & Co. consulting firm in Washington, D.C., notes that the board did not consider the importance of a variety of materials, such as rare earth magnets, and was misleading about the global supply of titanium. The only viable supplier of titanium outside the United States is the Russian firm VSMPO, a company that has been associated with Russian arms suppliers that have been sanctioned by the Department of State for supplying military equipment to the Iranians. “For not even examining the VSMPO titanium issue is appalling,” says Green. “Not identifying the issue of rare earths in high performance magnets [coming from China] totally misses the mark. The technical inaccuracies in the report are astounding.”

Lasoff says the real intent of the report is to provide DOD with the rationale for eliminating the Specialty Metals law requiring it to buy from U.S. producers. “It means U.S. defense dollars will be used to support the expansion of the specialty metals industry in Russia and China at the expense of U.S. producers,” says Lasoff. “This is not about ‘Buy American.’ This is about our national security.” The Defense Production Act requires U.S. companies to switch commercial production to military applications if the need arises. Foreign suppliers are under no such obligation to do so.

The industry is also upset by DOD’s use of market data derived from only one year, 2007, the best year in the industry’s history. A lot has changed in a very short amount of time. “You have an analysis of a single year upon which to determine to what degree these companies are dependent on DOD work,” says Lasoff, “And then you have it leading to a conclusion that they don’t need domestic preferences, completely ignoring the cyclicality of the industry and the critical nature” of DOD demand during economic contractions.

The “Report of the Meeting of the Department of Defense Strategic Materials Protection Board Held on December 12, 2008” is located at http://www.acq.osd.mil/ip/docs/report_from_2nd_ mtg_of_smpb_12-2008.pdf.

For a copy of 2007 SSINA report titled “Steel and the National Defense,” go to http://www.ssina.com/news/releases/pdf_releases/steel_and_national_defense_ 0107.pdf.

A study done for the DOD by the Institute for Defense Analysis, which bolsters the ideological case against the Specialty Metals requirement, (entitled “Assessment of Industry Investment in U.S. Domestic Production of Strategic Materials”) is located at http://www.acq.osd.mil/ip/docs/ida_paper_p-4377.pdf.