[Senate Hearing 108-428]
[From the U.S. Government Publishing Office]
S. Hrg. 108-428
REAUTHORIZATION OF
THE DEFENSE PRODUCTION ACT
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
THE RELEVANCE OF THE DEFENSE PRODUCTION ACT, AS WELL AS WHATEVER
MODIFICATIONS MAY BE REQUIRED AS A PRELUDE TO ITS REAUTHORIZATION
__________
JUNE 5, 2003
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island JON S. CORZINE, New Jersey
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Martin J. Gruenberg, Democratic Senior Council
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
?
C O N T E N T S
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THURSDAY, JUNE 5, 2003
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Allard............................................... 3
Prepared statement....................................... 28
Senator Corzine.............................................. 13
Senator Sarbanes............................................. 17
Senator Bennett.............................................. 20
WITNESSES
Ronald M. Sega, Director, Defense Research & Engineering, U.S.
Department of Defense.......................................... 3
Prepared statement........................................... 28
Response to written questions of:
Senator Shelby........................................... 40
Senator Reed............................................. 41
Suzanne D. Patrick, Deputy Under Secretary for Industrial Policy,
U.S. Department of Defense..................................... 5
Prepared statement........................................... 30
Response to oral questions of Senator Sarbanes............... 40
Response to written questions of Senator Reed................ 42
Karan K. Bhatia, Deputy Under Secretary for Industry and
Security, U.S. Department of Commerce.......................... 7
Prepared statement........................................... 33
R. David Paulison, Director, Preparedness Division, Emergency
Preparedness and Response Directorate, U.S. Department of
Homeland Security.............................................. 9
Prepared statement........................................... 36
Denise Swink, Acting Director, Office of Energy Assurance, U.S.
Department of Energy........................................... 11
Prepared statement........................................... 38
Response to oral questions of:...............................
Senator Shelby........................................... 46
Senator Allard........................................... 48
Additional Material Supplied for the Record
Prepared Statement of Senator Joseph I. Lieberman with attached
``White Paper''................................................ 49
(iii)
REAUTHORIZATION OF
THE DEFENSE PRODUCTION ACT
----------
THURSDAY, JUNE 5, 2003
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:01 a.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Richard C. Shelby
(Chairman of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The hearing will come to order.
The purpose of this morning's hearing on the Defense
Production Act is to examine its continued relevance, as well
as whatever modifications may be required as a prelude to its
reauthorization.
The Defense Production Act was originally passed in
response to the outbreak of war on the Korean Peninsula.
Following the end of World War II, the United States had
undertaken a major reduction in the size of its armed forces. A
combination of the end of war in Europe and the Pacific and the
role that would be played in
deterring the emerging threat from the Soviet Union by the
introduction into the American arsenal of nuclear weapons
seemed to dictate the need for far fewer conventional forces.
With a much smaller military, industrial facilities that had
been converted from commercial to military use to support the
war effort reverted back to their original function. The North
Korean attack on South Korea, however, jolted the American
defense establishment back to reality with respect to
conventional military requirements.
Increasing the size of the armed forces was one task.
Equipping existing and emerging units for combat, however, was
an entirely different matter. It was in that context that the
Defense Production Act of 1950 was passed. The Department of
Defense desperately needed American industry, that part of it
that could support the new war effort, to adapt its production
lines once again for military needs. The Defense Production Act
was the statutory vehicle that provided the Government
authorities it needed to respond to the sudden onset of war.
Despite innumerable modifications over the decades, the Defense
Production Act remains in large measure what it was originally
intended to be: The means by which the U.S. Government ensures
that commercial industry is responsive to the requirements of
the military in the event of a crisis.
Just as the U.S. economy adapted to the end of the Second
World War by ramping down that part of it involved in the
production of military equipment, so the economy again
responded to the end of the cold war. The defense industrial
base underwent a major contraction. According to the National
Defense Industrial Association, some 2.5 million defense
workers left that segment of the economy in the decade
following the collapse of the Soviet Union, and half of the
Nation's 60,000 defense companies--30,000 companies--left the
defense business. Manufacturers of many major weapon systems
are precariously dependent on decreasingly small numbers of
suppliers for components. In addition, the mind-numbing number
of defense mergers and acquisitions over the past 10 years has
contributed to the evolution of an increasingly precarious
defense
industrial base. In short, the ability of the economy to
respond rapidly to emerging national crises has become the
source of increasing concern to those who follow industrial
base issues.
It is in this context that we are here today examining the
Defense Production Act. The DPA expires at the end of the
current fiscal year, and it is the responsibility of the
Committee to draft succeeding legislation. That is why this
hearing was called, so that we can hear from some of the key
Federal agencies involved in using the authorities provided by
the Defense Production Act. Today's panel is composed of
officials from the Departments of Defense, Commerce, Homeland
Security, and Energy.
As the witnesses will illuminate, Defense Production Act
authorities continue to be used on a regular basis today, more
than 50 years after the Act's original passage into law. It has
been used to expedite production and fielding of weapon systems
that have played a vital role in the conduct of military
operations. The Act's authority to prioritize was key to the
rapid fielding of Predator UAV's armed with Hellfire missiles
and the provision to the British military of satellite
communications technology essential to the conduct of joint
operations in Afghanistan. It was used to procure precision-
guided munitions, supplies of which were being exhausted by
their greater-than-ever rates of expenditure. Other agencies,
as I have indicated, also utilized DPA authorities, as was seen
in the Transportation Security Administration's use of them to
acquire explosive detection devices for the Nation's airports.
The Administration's budget request for fiscal year 2004
includes as part of DPA reauthorization $200 million for
radiation-hardened electronic components, a special request
that hopefully will not have to be repeated for future
activities, but the justification of which in this instance
does, I believe, pass the sniff test. Finally, the
Administration has requested that Section 707 of the Act be
made part of a permanent law and no longer subject to periodic
reauthorization. The Administration's justification for this
request is the serious need to avoid a recurrence of what
happened during Operation Desert Shield, when the Civil Reserve
Air Fleet was activated and commercial aircraft were drafted
into the war effort. Section 707 provides commercial businesses
indemnification from lawsuits resulting from their having to
respond to emergency taskings at the demand of the Federal
Government.
While the Departments of Defense, Commerce, and Homeland
Security are represented here today because of their roles in
responding to crises, the Department of Energy is principally
represented here today to discuss a slightly less comfortable
issue: The possible abuse of DPA authorities by both the
previous and current Administrations to provide relief to the
State of California during the period of rolling blackouts.
This highly questionable use of DPA authorities represents
precisely the type of Government action that must be very
closely scrutinized. My predecessor here as Chairman of the
Committee, Senator Gramm, held a hearing on this subject 2
years ago. As the DPA expires soon and consequently needs to be
reauthorized, I felt this was a good opportunity to address the
matter once more for the purpose of preparing legislation.
Testifying before the Committee today are Suzanne Patrick,
Deputy Under Secretary of Defense for Industrial Policy; Ronald
Sega, Director of the Defense Department's Office of Defense
Research and Engineering; Karan Bhatia, Deputy Under Secretary
of Commerce for Industry and Security; David Paulison, Director
of the Department of Homeland Security's Emergency Preparedness
and Response Directorate; and Denise Swink, Acting Director of
Energy Assurance, Department of Energy. We look forward to all
of your testimony.
First, I want to recognize Senator Allard.
COMMENTS OF SENATOR WAYNE ALLARD
Senator Allard. Mr. Chairman, I do not have any statements
that I want to make at this time. I do have a statement I would
like to submit for the record, and I ask unanimous consent that
it be made part of the record.
Chairman Shelby. Without objection, so ordered.
Senator Allard. I want to welcome my good friend, Dr. Sega,
to the panel. I look forward to hearing your comments.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you, Senator Allard.
All of your written testimony will be made part of the
hearing record in its entirety, and if you would briefly sum up
your pertinent, most important remarks.
We will start with you, Dr. Sega.
STATEMENT OF RONALD M. SEGA
DIRECTOR, DEFENSE RESEARCH & ENGINEERING
U.S. DEPARTMENT OF DEFENSE
Mr. Sega. Good morning, Mr. Chairman and Members of the
Committee. I appreciate the opportunity to share with you the
Department of Defense views regarding the Defense Production
Act and the role it plays in helping to obtain goods and
services needed to promote the national defense. Although
enacted originally in 1950, the Act provides statutory
authorities still relevant and necessary for the Nation's
defense in the 21st Century.
The DPA is providing the Department with the tools required
to maintain a strong response base necessary for our armed
forces. I want to express the Department's support for
reauthorizing the Defense Production Act. A key component of
DPA is Title III, which will be the focus of my testimony. The
Deputy Under Secretary of Defense for Industrial Policy, Ms.
Suzanne Patrick, will follow with a discussion of Title I and
briefly touch on some of the key components of Title VII.
Title III provides the President unique authorities that
are being used to establish, expand, and maintain essential
domestic industrial capacity needed to field advanced systems
for today and the future. The primary objective of the Title
III program is to work with U.S. industry to establish viable
production capabilities for items essential to our national
security. The Title III program is also being used to
transition emerging technologies.
A success story is a good way to highlight the benefits of
the program. Gallium arsenide is a semiconducting material used
in the fabrication of advanced electronic devices. At the
outset of the gallium arsenide Title III project, long-term
viability of the U.S. gallium arsenide wafer supplier base was
in doubt. Foreign firms dominated the industry with about 75
percent of the world's market share.
With the help of Title III, the U.S. producers made a
dramatic turnabout. By the year 2000, these contractors
accounted for 65 percent of wafer sales worldwide. Their
combined sales of gallium arsenide wafers grew by near 400
percent. In addition, the wafer prices dropped by approximately
35 percent. This reduction in wafer prices and improvement in
wafer quality resulted in significant reductions in defense
costs for critical electronics.
DOD is initiating two new projects this year. One of these
projects will be establishing production capacity for Yttrium
Barium Cooper Oxide superconductor wire.
Projects initiated in fiscal year 2002 include a project
for radiation hardened microelectronics, which you mentioned.
This project illustrates the key role Title III plays in
providing our armed forces with the technologies they need to
be successful on the battlefield. We were in danger of losing
our last remaining suppliers of these critical components
needed for our strategic missile and space
systems. Because of the small number of components that the
Department buys and limited commercial demand, our current
suppliers were unable to generate sufficient revenues to
purchase the production equipment needed to produce radiation
hardened microelectronics at the feature size needed to meet
future defense requirements. Title III is helping these
companies with equipment purchases and modernization to remain
viable suppliers, capable of supporting future defense
requirements. Without Title III, it is likely we would have
lost this critical production capability.
Most provisions of the Defense Production Act are not
permanent law and must be renewed periodically by Congress, as
you pointed out. The Department supports reauthorization of the
Defense Production Act until September 30, 2008. In addition,
we are requesting an increase in the statutory authority limit
contained in Section 303 to $200 million to correct the
industrial resource shortfall for the radiation-hardened
electronics project. The DPA requires the Department to obtain
specific authorization for any Title III project that exceeds
$50 million. The expected cost of the radiation hardened
electronic project is $167 million. However, we are asking for
authority up to $200 million in the event of unexpected cost
increases for the project.
In conclusion, the DOD needs the Defense Production Act. It
contains authorities that exist nowhere else. Current world
events make these authorities more important than ever. DPA is
a proven mechanism. Its array of authorities have helped us
meet the challenges of the last 50 years. By judiciously
applying its authorities to the challenges facing us today, the
DPA will see us to a more secure future. I hope that I have
conveyed to you the significant role the Defense Production Act
plays in ensuring our Nation's defense. The Department fully
supports the bill before the Committee to reauthorize the DPA.
Thank you very much for the opportunity to discuss the
Defense Production Act.
Chairman Shelby. Thank you, Dr. Sega.
Ms. Patrick.
STATEMENT OF SUZANNE D. PATRICK
DEPUTY UNDER SECRETARY FOR INDUSTRIAL POLICY
U.S. DEPARTMENT OF DEFENSE
Ms. Patrick. Good morning, Mr. Chairman, Senator Allard,
and Members of the Committee, their staff, and other people in
the audience. I really appreciate the opportunity to share with
you the DOD views regarding the Defense Production Act.
As Dr. Sega indicated, this Act provides statutory
authorities that are vital for DOD, both in time of contingency
or conflict, as well as during peace. It helps DOD obtain the
goods and services we need to promote national defense.
With your permission, I will be summarizing the testimony I
have submitted for the record. Dr. Sega talked about Title III.
My testimony today focuses on Title I of the Defense Production
Act, and I want to briefly mention Title VII of the Act, which
is also very important to the Department.
As you know, the Defense Production Act Titles II, IV, V,
and VI have been repealed. I particularly want to describe to
you today why Title I authority is important and how we are
using it today.
Title I, which addresses priorities and allocations,
provides the President the authority to require preferential
performance on contracts and orders, as necessary or
appropriate to promote the national defense. These authorities
are important in peacetime and vital in the event of conflict.
These authorities are implemented through the Defense
Priorities and Allocations System and applied via contract
clauses. The clauses are like insurance. They are present in
nearly all defense system contracts, subcontracts, and orders,
but actually executed only when absolutely necessary.
During peacetime, Title I authorities are important in
setting priorities among defense programs that are competing
for scarce resources and industrial production of parts and
subassemblies. Delayed industrial supplies increase costs of
weapon systems and affect our readiness. DPAS serves as an
important tool to prioritize and accelerate deliveries and
minimize cost and schedule delays for the Department's orders.
During times of conflict, DPAS is vital, indeed,
indispensable. DPAS gives the Department of Defense the
necessary power and the flexibility to quicken deliveries in
order to address critical warfighter needs effectively and
expeditiously. The role of DPAS to increase interoperability
and assist allies is also very important.
I would like to mention three specific cases that
illustrate the absolutely necessary power that DPAS provides
the Department, and Chairman Shelby has actually mentioned some
of these in his opening remarks.
Predator UAV's armed with Hellfire missiles were used for
the first time in Afghanistan. They included an upgraded sensor
package, the Multi-Spectral Targeting System. The contractor's
original delivery date for these systems was March 2003, just a
couple months ago. Using DPAS, we jumped this order to the head
of the production line, and the contractor was able to deliver
three systems in December 2001, 18 months earlier than
originally promised. Since that time, we have further used DPAS
to accelerate 40 additional Multi-Spectral Targeting Systems.
We are all aware of the dramatic impact that unmanned Predators
had in waging war in Afghanistan, and most recently in Iraq.
During Operations Enduring Freedom and Iraqi Freedom, a
new, lighter kind of body armor proved remarkably effective in
minimizing fatal battlefield injuries. That latest generation
Army and Marine body armor is comprised of protective vests
with inserts made of an extremely tough fiber--Spectra--which
is bonded to a ceramic plate. We used DPAS authority to direct
the Spectra manufacturer's production to the highest priority
Army and Marine requirements in order to maximize small arms
protection for the warfighters.
Let me now give you an example for our allies. For
Operation Iraqi Freedom, the U.K. MOD needed Precision
Lightweight GPS Receivers. The U.K. requirements were critical
to the warfighting effort. We used DPAS to give the U.K. order
an industrial priority rating and it was moved ahead of some
lesser priority U.S. orders that were not needed for deployed
forces or for deploying forces. The U.K. received the equipment
in a timely manner to support their forces and our forces in
theater.
I would like to conclude my remarks on Title I of the DPA
by noting that our warfighters are the real DPAS beneficiaries.
Limiting our authority to apply these provisions has the
potential to put their lives at risk.
Turning now to Title VII, I want to briefly express support
for these authorities, also very important for the Department.
Title VII contains miscellaneous provisions, including
enforcement mechanisms, which help protect the Nation's
security. For example, Section 707 provides that, ``No person
shall be held liable for damages or penalties for any act
resulting from compliance with rules, regulations, or orders
issued under the Defense Production Act.'' This provision is
necessary to protect suppliers from breach of contract claims
when commercial contracts are displaced in the interest of
national security. This provision should be permanently
authorized in order to protect contractors during periods when
the Defense Production Act has lapsed, as has happened
temporarily.
Section 721 represents another example of important Title
VII authorities. Section 721 allows the President to suspend or
prohibit a foreign acquisition of a U.S. firm when that
transaction would represent a credible threat to the national
security of the United States and imposes remedies to eliminate
that threat that are not available under other statutes. This
authority is increasingly important in today's globalized,
industrialized environment.
In closing, I would like to reaffirm the DPA authorities
are critical as a tool in the Department of Defense's arsenal.
Time and again, particularly during times of conflict, we use
DPA authorities to promote our Nation's security. Given the
challenges in the current uncertain environment, we urge you to
remove the uncertainty associated with the short duration of
these authorizations and reauthorize the Act through September
30, 2008. It would be very difficult for the Department of
Defense to meet its national security responsibilities without
these tools.
Thank you very much.
Chairman Shelby. Mr. Bhatia.
STATEMENT OF KARAN K. BHATIA
DEPUTY UNDER SECRETARY FOR INDUSTRY AND SECURITY
U.S. DEPARTMENT OF COMMERCE
Mr. Bhatia. Thank you, Mr. Chairman, and other Members of
the Committee. I appreciate the opportunity to testify before
you today on the reauthorization of the Defense Production Act.
The Commerce Department fully supports extension of the
DPA. We do so because in our experience the DPA has been a
critically important tool in enabling Government to work
effectively with industry to meet contemporary challenges to
our security. My written statement, supplied for the record,
discusses in detail the various ways in which the Commerce
Department is involved in the exercise of DPA authorities and
provides a number of relevant examples. In the interest of
brevity, I won't duplicate that
testimony here. But I would like to briefly identify several
authorities under the Act that facilitate particularly key
Commerce Department activities.
First, under Title I of the DPA, the Department administers
the Defense Priorities and Allocations System, which Ms.
Patrick just discussed as well. DPAS seeks to ensure the timely
availability of products, materials, and services that are
needed to meet national defense and emergency preparedness
requirements with minimal interference to the conduct of normal
business activity. It does this by creating a system of
priority ratings that can be attached to procurement contracts
by agencies to which Commerce has delegated rating authority,
such as the Department of Defense. The DPAS
also provides an operating structure to support a timely and
comprehensive response by U.S. industry in the event of a
national emergency.
In addition to the DPAS, the DPA also provides authority to
the Commerce Department to collect data, perform analysis, and
prepare reports on critical defense industrial base issues, and
specifically it requires the submission to Congress of annual
reports
analyzing offsets in defense trade. It is also the source of
authority for the reports that Commerce prepares each year,
commonly at the request of Congress or the armed forces,
analyzing various sectors of the defense industrial base.
Let me pause in this context to note the Commerce
Department for a minor but we believe important amendment to
the DPA that would clarify that the President's investigative
authorities under the DPA encompass the authority to obtain
information necessary to produce such industry studies. The
current Section 705 of the DPA provides the Commerce Department
investigative authority regarding the defense industrial base,
and we have used this authority in the performance of our
industrial base assessments. And while we are confident that
this is consistent with Congress' intent, we think it would be
helpful if that intent were made completely explicit in the
language of Section 705, and to that end, we support a slight
amendment that would make clear that the investigative
authority ``includes the authority to obtain information in
order
to perform industry studies assessing the capabilities of the
U.S.
industrial base to support the national defense.'' Such an
amendment has already been approved by the House Committee on
Financial Services.
Finally, the DPA authorizes review of the national security
implications of foreign acquisitions of U.S. companies and, if
necessary, the prohibition of acquisitions where there is
credible evidence that the foreign interest acquiring the U.S.
company might take action that threatens to impair U.S.
national security. The Commerce Department is one of the
Federal agencies that participates in the analysis of such a
transaction.
When this Committee last convened at a hearing to consider
reauthorization of the DPA almost 2 years ago, none of us could
have predicted the security challenges that the United States
would soon encounter at home and abroad, nor the important role
that DPA authorities would play in meeting those challenges.
But they have played precisely that role. Pursuant to DPA
authorities, the DPAS has worked to secure delivery of a number
of items ranging from guidance system components for ``smart
bomb'' munitions to search and rescue radios for both U.S. and
allied forces.
Here at home, the DPA has helped facilitate a number of
post-September 11 initiatives to secure the homeland. DPAS
support has been provided to the FBI to upgrade its
communications and data-processing capability, to the
Transportation Security Administration, as Senator Shelby
mentioned, to achieve timely delivery of
explosive detection systems equipment, and we are currently
working with the Department of Homeland Security regarding
possible DPAS support for the Customs Service's Automated
Commercial Environment Port Security System.
Finally, DPAS authority has facilitated the completion of a
number of in-depth studies of the defense industry, including
most recently a comprehensive analysis of the impact of offsets
on defense trade over a 6-year period, and we understand that
report has been well received by both Congress and industry.
In short, thanks to this Committee's work in reauthorizing
the DPA 2 years ago, we have had in place vitally important
statutory authority enabling the Federal Government to meet the
new and diverse challenges to our security. As it has over the
past 50 years, this statute has again demonstrated its utility
and value. We strongly support its reauthorization.
Chairman Shelby. Mr. Paulison.
STATEMENT OF R. DAVID PAULISON
DIRECTOR, PREPAREDNESS DIVISION
EMERGENCY PREPAREDNESS AND RESPONSE DIRECTORATE
U.S. DEPARTMENT OF HOMELAND SECURITY
Mr. Paulison. Thank you, Mr. Chairman and Members of the
Committee. On behalf of Secretary Ridge, I appreciate the
opportunity to appear before you this morning to support the 5-
year
reauthorization of the nonpermanent provisions of the Defense
Production Act.
The DPA is the President's primary authority to ensure
timely availability of industrial resources for both military
and civil emergency preparedness and response. Expiration of
these provisions would severely undermine the Nation's ability
to prevent, as well as respond to disasters that are truly
catastrophic--whether natural or manmade.
The Department of Homeland Security combines many
Government functions that focus on protecting our Nation's
borders and airports, among other activities, and ensuring that
we are prepared for and able to respond to terrorist attacks
and natural disasters. The Defense Production Act authorities
are critical to the Department's strategic objectives to
prevent terrorist attacks within the United States, to reduce
America's vulnerability to terrorism, minimize the damage, and
to hasten the recovery from attacks that may occur.
Since September 11, 2001, we have seen the effectiveness of
the Defense Production Act in reducing the Nation's
vulnerability to terrorism. Specifically, the Defense
Priorities and Allocations System authorized under Title I of
the DPA, as you pointed out
earlier, Mr. Chairman, was used by the Transportation Security
Administration to expedite the production of explosive
detection and communication systems within our major airports.
Without the use of these priority orders, the manufacturers
could not have delivered these systems in a timely fashion. In
addition, we expect to request assignment of a DPA priority
rating from the Department of Commerce to support the Bureau of
Customs and Border Protection within our Department to obtain
equipment that will enable us to track containerized shipping
arriving at our borders.
The Defense Production Act can also be used for
preparedness, response, and recovery activities in catastrophic
disasters such as an earthquake, a hurricane, or an incident
involving a weapon of mass destruction. This use is being
integrated into planning for such catastrophic occurrences now.
DHS understands the need to have a Priorities and
Allocations System ready to ensure the timely availability of
resources to meet our civil emergency requirements. Such a
priorities and allocations system will enable Federal, State,
and local governments to acquire items needed urgently to meet
the needs of affected populations when such items are not
readily available in the marketplace. Without this system, our
response and recovery operations could be severely hindered.
Other DPA authorities are important to the DHS mission.
These authorities include the use of: Financial incentives,
subject to Presidential designation, to establish industrial
capacity for products and services, such as vaccines to protect
against biological agents, under Title III; industrial
agreements to enhance preparedness and response capabilities--
for example, critical infrastructure protection, under Section
708; and also an executive reserve to provide expertise from
the private sector during an emergency, under Section 710.
Within the new Department, DPA authorities reside with the
DHS Under Secretary for Emergency Preparedness and Response.
DHS is preparing departmental guidance on the use of these DPA
authorities. Specifically, DHS is implementing its DPA
responsibilities by: Serving as an advisor to the National
Security Council on DPA authorities and national security
resource preparedness issues and reporting on activities under
Executive Order 12919; providing central interagency
coordination of the plans and programs under the authorities of
Executive Order 12919; developing guidance and procedures under
the DPA for approval by the national Security Council;
resolving issues on resource priorities and allocations; making
determinations on use of priorities and allocations for
essential civilian needs supporting the national defense; and
coordinating national Defense Executive Reserve program
activities of departments and agencies in establishing the
National Defense Executive Reserve units and providing guidance
for recruitment, training, and activation.
The Department of Homeland Security National Defense
Executive Reserve program is being evaluated in terms of what
private sector expertise can be mobilized when needed to
respond to today's threats. The national Defense Executive
Reserve units are valuable assets to several Federal
departments and agencies, and the reauthorization of the DPA is
required to continue this program.
The Department of Homeland Security also recognizes the
importance of Section 708 of the Defense Production Act that
provides authority for the creation of voluntary industry
agreements to support preparedness for national defense and
civil emergencies. This authority allows industry and the
Federal Government to work together to solve problems that
inhibit the availability of resources in an emergency. The
Homeland Security Act authorizes the use of this provision for
critical infrastructure protection planning and information
sharing. Section 708 provides narrow antitrust and limited
liability protections for infrastructure sectors and industry
that are asked to prepare preparedness plans. The Department of
Homeland Security will be reviewing the guidelines of this
program and determining if they need to be revised or
streamlined to meet the current environment.
We will work with the National Security Council, the
Homeland Security Council, and appropriate Federal departments
and agencies to ensure that the Department of Homeland Security
issues proper guidance and procedures for the implementation of
these DPA authorities. We view the DHS responsibilities under
the DPA seriously, and we recognize the potential of the Act to
support the efforts of other departments and agencies to
prevent, prepare for, respond to, and recover from potential
terrorist attacks and other emergencies.
In summary, the Department of Homeland Security is
committed to fulfilling its responsibilities under the DPA and
recognizes the potential to significantly enhance the Nation's
ability to respond to a homeland security threat.
Thank you for the opportunity to appear today, and I will
be pleased to answer any questions you might have.
Chairman Shelby. Thank you, Mr. Paulison.
Ms. Swink.
STATEMENT OF DENISE SWINK
ACTING DIRECTOR, OFFICE OF ENERGY ASSURANCE
U.S. DEPARTMENT OF ENERGY
Ms. Swink. Good morning, Mr. Chairman and Members. I am
pleased to appear before the Committee in response to its
request for testimony by the Department on the reauthorization
of the Defense Production Act. The Committee's invitation
letter requested the Department to address, in particular, the
role of the Department of Energy in responding to crises in
which Defense Production Act authorities are required.
The DOE Office of Energy Assurance is responsible for
protecting critical infrastructures and key assets in the
energy sector. Our
office leads the effort to ensure a secure and reliable flow of
energy to America's homes, businesses, industries, and critical
infrastructure. In carrying out our mission, we work closely
with the Department of Homeland Security and in partnership
with industry and State and local governments. The Department's
energy assurance program is conducted in direct support of the
President's National Strategy for Homeland Security and the
President's National Energy Policy.
A comprehensive discussion of the authorities contained in
the DPA and of how they might be used in responding to energy
emergency situations is contained in a 1982 Department of
Justice memorandum of law for the President which was submitted
to Congress in compliance with the Energy Emergency
Preparedness Act of 1982. The memorandum's discussion of the
DPA remains valid today. As the Justice Department's memorandum
makes clear, whether the Defense Production Act authorities
placed in the President might be useful in responding to energy
crises would be highly fact-dependent. However, we do believe
that a number of the Act's provisions could be potentially
useful in addressing energy needs, and I will address their
past use by the Department and ways in which the authorities
could be useful in the future.
Title I of the Defense Production Act contains two separate
priority contracting provisions authorizing the President to
require performance on a priority basis of contracts or orders
in certain circumstances. The Secretary of Energy has been
delegated authority by the President to exercise the Title I
priority contracting authorities, in Executive Order Numbers
11790 and 12919. The first provision, Section 101(a) of Title
I, deals with priority contracting to ``promote the national
defense.'' Under Section 101(a), the Secretary may require
performance on a priority basis of contracts for energy
supplies that the Secretary deems ``necessary or appropriate to
promote the national defense.'' This authority could be used,
for example, to require the acceptance of and priority
performance under contracts relating to production, deliver, or
refining of petroleum products or other forms of energy,
including natural gas, to meet the energy needs of the
Department of Defense and its contractors. It also could be
used to facilitate transportation of energy supplies to meet
national defense needs, for example, by requiring pipelines,
marine terminals, and other facilities to perform energy
transport contracts necessary to meet the priority needs of the
Department of Defense and its contractors.
In determining what the national defense requires, it is
clear the Secretary may consider the potential impact of
shortages of energy supplies. In the Energy Security Act of
1980, Congress specifically designated energy as a ``strategic
and critical material'' within the meaning of the Defense
Production Act and also added language to the DPA Declaration
of Policy that establishes a link between assuring the
availability of energy supplies and maintaining defense
preparedness. The Defense Production Act's Declaration of
Policy states: ``[I]n order to ensure national defense
preparedness, which is essential to national security, it is
necessary and appropriate to assure the availability of
domestic energy supplies for national defense needs.''
The second priority contracting provision in Title I of the
Defense Production Act is 101(c), linked to facilitating
projects that maximize domestic energy supplies rather than to
meeting the needs of the national defense. Section 101(c)
authorizes the Department of Energy to require priority
performance of contracts for goods and services for projects
which would maximize domestic energy supplies, if the
Secretaries of Energy and Commerce make certain findings,
including that the goods or services are scarce and critical
and essential to maximizing domestic energy supplies. If world
circumstances were such that the President directed a drawdown
of the Strategic Petroleum Reserve, and coincident with that
direction from the President there was a significant breakdown
in the
Strategic Petroleum Reserve facilities, that would be the type
of circumstance where, if it were urgent to replace scarce and
backlogged specialized pumps and other apparatus, the
Department could rely upon Section 101(c) to bring the facility
back online in an operational sense as promptly as possible.
Absent the Defense Production Act, it would be exceedingly
difficult to persuade vendors to put our order at the head of
the line for fear of third-party contract liability that they
otherwise might expose themselves to, even if they were
otherwise willing to cooperate with the Department in the
interests of the country.
Section 101(c) also might be used alone, or in tandem with
Section 101(a), to assist in restoring critical energy
infrastructures following widespread terrorist attacks or a
natural disaster, for example, to assist electric utilities,
oil companies, or other energy companies in obtaining equipment
needed to repair damaged facilities, or to provide fuel oil or
natural gas to electric utilities to ensure continued supply of
electricity.
Section 101(c) was used in the late 1970's and again in the
1980's and early 1990's to facilitate petroleum production
development of the Alaskan North Slope. The Department also
relied on Section 101(c), as well as 101(a), as a complement to
the emergency provisions of the Natural Gas Policy Act, in its
January 2001 orders,
directed by former President Clinton, to the Pacific Gas and
Electric Company and a number of natural gas suppliers to
ensure the continued supply of natural gas necessary for
continued availability of electric service in the central and
northern regions of California.
A third Defense Production Act provision which has been
used in the past to address energy supply problems is Section
708, which, as Mr. Paulison mentioned, provides a limited
antitrust defense and breach of contract protection for the
industry participating in voluntary agreements and plans of
action ``to help provide for the
defense of the United States through the development of
preparedness programs and the expansion of productive capacity
and supply beyond levels needed to meet essential civilian
demand in the United States.'' This provision has its roots in
our World War II experience and was an important vehicles for
gaining the help of the oil industry during and after the
Korean War. For example, in 1951-52, a voluntary agreement
under Section 708 was used to protect a group of oil companies
which agreed to provide heating oil to redress a winter
shortfall in New England. Later, Section 708 was used for the
first voluntary agreement of U.S. oil companies which had
agreed to participate in the International Energy Agency's
standby emergency preparedness programs. Subsequently, in 1975,
Congress enacted very similar voluntary agreement authority in
Section 251 of the Energy Policy and Conservation Act.
In the future, in the event of widespread damage to energy
production or delivery systems caused by acts of terrorism or
natural disasters, the DPA's Section 708 voluntary agreement
authority might be used in establishing a voluntary agreement
of energy service companies to coordinate the planning of the
restoration of the damaged facilities.
Finally, to facilitate communications among stakeholders
and to broaden our partnerships with the private sector, we
have established Information Sharing and Analysis Centers among
energy industry stakeholders to improve infrastructure
security. We expect to confer with the ISAC's on all of the
authorities available to the President and to the Department
that might be useful in protecting and, if necessary, restoring
critical energy infrastructures.
The Secretary believes that the authorities the DPA confers
on the President are important tools that should remain
available to the President unimpaired to use in appropriate
circumstances. Accordingly, the Department joins the rest of
the Administration in supporting a 5-year extension of the
Defense Production Act.
I will be pleased to respond to any questions.
Chairman Shelby. Thank you.
Senator Corzine, do you have any comments? I know you have
to go somewhere.
COMMENTS OF SENATOR JON S. CORZINE
Senator Corzine. Thank you very much, Mr. Chairman. I do
have a question.
Chairman Shelby. Go ahead.
Senator Corzine. I appreciate it very much. I will be
brief.
First of all, I think it is vital what you are doing, Mr.
Chairman.
Chairman Shelby. Thank you.
Senator Corzine. I congratulate you for bringing this
forward, and I thank the witnesses for their testimony.
I have a question that really relates to the financial
services industry and its critical nature with regard to our
Nation's infrastructure, and particularly some of the large
dollar payments that are associated with the Federal Reserve
System and other financial intermediaries that are connected to
that. I know there is a high interdependence on that. Some of
it actually is an international interdependence as well.
Reliable and resilient telecommunications systems make that
system work, and we saw some issues after September 11 where
maybe some of those networks were not everything that one would
have hoped they would be in their backup. A lot of circuit
diversity might not have been in place.
I really want to know whether in a large-scale attack or
other situations whether there is thought of using the DPA in
those circumstances for building up some of that diversity,
improving the reliability, whether that has been looked at in
the Department of Homeland Security, potentially in Commerce.
And I guess the basic question is: Do you think that this is
the kind of application that the Act might be readily for--to
encourage the private sector to participate more fully in
developing that duplication, that redundancy that we might want
in the system? Is that an appropriate application of the Act? I
guess I will leave it there.
Mr. Paulison. Yes, sir, I think it would be in the case of
some type of catastrophic incident. We feel like the DPA does
address our critical infrastructures, and that is part of our
critical infrastructure. We are currently under HSPD-5 going
through the DPA to make sure that it does address all of our
critical infrastructures. Right now we think it does. We want
to make sure, and we will have that report ready probably right
around the first week in
September, but definitely if part of our communications
critical infrastructure was destroyed that we could use this to
rebuild that.
Senator Corzine. How about in the forward planning of
building in that redundancy? It may be for competitive reasons,
in the same way that we heard other examples that there
wouldn't be the incentive for the private sector to go into a
situation where more
monopolistic or at least--and I only mean that in the narrow
geographical context, that there wouldn't be a reason for that
diversity to develop. Could the Act be used without an
incident?
Mr. Paulison. I would have to do some significant research.
If I am answering your question correctly, with our cooperative
agreements that we do with the Federal Government and some
companies, I think the answer is yes. I think that by having
companies go together and given the limited protection, we
could use some type of redundancy between different--Company A
and Company B providing the same types of communications
systems, the answer is yes. But I can give you a more
definitive answer after some research. I believe the answer is,
yes, we can do that.
Senator Corzine. I would appreciate very much a response in
writing.
Mr. Paulison. Absolutely.
Senator Corzine. I would love to work with you and make
sure those kinds of incentives are there.
Mr. Paulison. I realize that is an important issue.
Senator Corzine. And, really, it probably gets beyond the
financial services arena in a number of other critical
infrastructure nodes in the economy where the
telecommunications industry tends to have one network, because
there wouldn't be a buyer otherwise, and there may be a real
need to look at this.
Mr. Paulison. Yes, and I think part of the answer to your
question also is our interoperability issue with our radio
communications, especially with our first responders. We are
putting monies out in the very near future--in fact, we are
gathering proposals now from different States and different
cities to evaluate those, and we have millions of dollars to
put out there to do some prototype best practices, if you will,
systems in different cities. I think that is the issue, the
interoperability issue. And I agree with you, what we do not
want is a nationwide communications system because that is very
vulnerable. The system we have now where each city has its own
communications system has its positives. There is no one point
of attack. But also the negative is they cannot talk to each
other. So that is one of the issues we are dealing--totally
outside the DPA. So, I think there is more than one approach to
resolving the issue you are talking about.
Senator Corzine. Okay. I wonder if any of the other
panelists have thought about this at all.
Mr. Bhatia. Well, to go back to the immediately preceding
point, Senator--the question of whether there is the ability to
use DPA authority proactively--there was a critical amendment
to the DPA--I think it was in 1994, the Stafford Act--which
took the phrase ``to promote the national defense'' and defined
``national defense'' to include ``emergency preparedness.'' And
if you trace through the definition a little bit, ``emergency
preparedness'' includes activities that would occur--that you
would undertake obviously after and during, but also before the
act itself.
So while this is always a very fact-driven kind of thing--
you have to look at the particular case--I think it would be
fair to say that by virtue of that 1994 amendment, it is
contemplated within DPA that you would be taking activities
beforehand, or that the authorities would be available to be
used for activities that might occur beforehand in preparation
of a hazard or national disaster.
Senator Corzine. We would very much like to work with you
on the elements that relate to these payment systems, which I
think are very critical to our work and our economy.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you, Senator Corzine.
Senator Allard.
Senator Allard. Thank you, Mr. Chairman.
I would like to inquire a bit about the investigative
authority that the Department of Commerce was requesting. Could
you elaborate a little more on that?
Mr. Bhatia. Sure. We produce studies, Senator, generally
analyzing the health of specific sectors of the defense
industrial base, often at the request of Congress. To give you
just one example, in the fiscal year 2003 appropriations bill
there was a specific request put into the report language
asking the Commerce Department to produce a report analyzing
the health and welfare of the textile and apparel industry and
the implications of that health and welfare to our national
defense and to the armed forces. That is just an example. We
have done other similar studies on other things.
The investigations that we do to satisfy those requests
have a number of components to them. We look at open source
information. We would with trade associations and with members
of industries. We work closely with the Defense Department and
the armed forces.
But one of the things that we do is we issue surveys to
industries that would be within that area--so, for instance,
the textile and apparel industry, asking questions such as
``what is your health and welfare,'' or things designed to get
to that issue. And we do that under the investigative
authorities of the DPA. The results of those surveys, the
responses of the surveys have been very helpful to us in
producing studies.
Senator Allard. And your investigation's purpose is to
establish the criteria to determine whether you want to put
these incentives toward the private sector?
Mr. Bhatia. It is not incentives particularly. This would
just be to do an assessment, really just a study of what the
health and welfare is, and thereby inform Members of Congress
or the Defense Department itself as to whether there is a
problem in the area.
Senator Allard. How do you look at, for example, exports of
dual-use military equipment, that type of thing?
Mr. Bhatia. I happen to wear two hats. We both in the
Commerce Department do DPA-related activities along the lines
of what I described in my testimony. We also are the agency
charged with administering our dual-use export control system.
That is outside of the scope of the DPA. We do that----
Senator Sarbanes. So, you are taking off one hat and
putting on the other.
Mr. Bhatia. Exactly.
Chairman Shelby. You do not have anything--but as far as
this Act is concerned, dual-use is not a consideration or
anything?
Mr. Bhatia. Again, we do look at dual-use export licenses
under the Export Administration Act, but those activities are
not germane to the DPA.
Senator Allard. Okay. Now, I think several of you were
requesting a 5-year reauthorization in the testimony. Do you
think that is adequate, or do you want more or less?
Mr. Bhatia. I know the other panelists may have something
to say on this as well. Our view is that this is a good Act,
and it provides useful authorities both for our national
defense and for our armed forces, and it is also useful for
industry to have the security the DPA provides and to know that
those authorities are out there.
I think we would welcome a longer extension, but our sense
is, just from looking at past history of extensions, that 5
years is probably what we could expect.
Senator Allard. I think we need to have adequate oversight
on the legislative side also.
Mr. Bhatia. Understood completely.
Senator Allard. Are you receiving any complaints from your
businesses about production requirements, whether they are
unreasonable or unfair? What kind of complaints do you get from
businesses? I would be interested in hearing each panelist's
response.
Ms. Patrick. What kind of production requirements were you
alluding to?
Senator Allard. Well, do some businesses want to qualify
for the program and others do not? Are there complaints in that
regard? Or are there some that think that once they get into
the program, maybe the requirements are too rigid and
restrictive? I would like to get a feel of what concerns might
be coming out of the private sector.
Ms. Patrick. Yes, let me start with that. First of all, as
I said in my testimony, the DPA is really a form of insurance
that works to the benefit of the Department in terms of
reprioritizing or reallocating under existing contracts. And so
it is something that really is existing in the vast majority of
the contracts that we have in the Department. I would say over
98 percent of them, in fact. And we really have not received
any complaints, at least in my tenure, or, as I know from the
historical memory of my staff, in terms of companies
complaining about DPA authorities.
We, on the other hand, do work very hard with companies
when we have specific requirements that we need to prioritize
to make sure that we do not in some way unnecessarily or
excessively jeopardize their commercial markets or their
ability to serve their commercial clients. And so when we
implement the authority, it is
really subject to some very close negotiations with the
companies affected.
One of the examples that I gave you on Spectra, for
example, involving Honeywell, we worked very judiciously to
make sure that our warfighters got what they needed, but we did
not unduly put any strains on Honeywell's production lines for
other materials. And so it is something that, as I said, has
worked very collabora-
tively between the companies and the Department. But I am aware
of no complaints with regard to the actual provision.
Senator Allard. Mr. Chairman, I see that my time has
expired. Thank you.
Chairman Shelby. Senator Sarbanes.
COMMENTS OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Thank you very much, Mr. Chairman.
I was not here at the outset when they made their opening
statements, but I do want to make one observation before I move
to questions.
Chairman Shelby. You proceed. Yes, sir.
Senator Sarbanes. First, Mr. Chairman, I want to commend
you for holding today's hearing. The DPA is an important part
of the responsibility of the Banking Committee, and its
importance has been underscored by the witnesses at the table.
It is not an issue that gets a lot of public attention, but it
is a matter of seriousness, and I am pleased that you are
focusing attention on it.
I am a little concerned by the transmission of the
Administration's request to the Congress for the
reauthorization of the DPA, the one that is up here now.
Chairman Shelby. Yes, sir.
Senator Sarbanes. We last reauthorized the DPA in 2001. In
fact, we had held an oversight hearing ahead of the
Administration's submission of authorization, which came from
the Federal Emergency Management Agency and was transmitted to
this Committee, the reauthorization request.
This year, the Administration's transmission to the
Congress requesting a reauthorization came not from FEMA nor to
the Committee, but came from the Defense Department as part of
the request for the national defense authorization bill and
went to the Vice President in his capacity as President of the
Senate.
Now, I recognize, of course, that the Department of Defense
has a central interest in the workings of the DPA, but the DPA
heretofore--and I hope hereafter--is not under the jurisdiction
of the Armed Services Committee, and under ordinary
circumstances wouldn't be considered as part of the defense
authorization bill.
I think this Committee has been attentive to its
jurisdictional responsibilities for the DPA, and, Mr. Chairman,
I know you asserted our Committee's role.
Chairman Shelby. Absolutely. We are going to assert our
jurisdiction.
Senator Sarbanes. Absolutely. But I just wondered why it
happened this way. Perhaps it is because there was the
disruption
created by the transfer of FEMA to the Department of Homeland
Security, which I gather now has the lead responsibility for
the
administration of DPA. And I guess that is really the first
question I want to ask.
Ms. Patrick. Senator Sarbanes, let me take that question
for the record as to why the process by which this particular
provision came to you was different this time than it had been
previously. I would rather not speculate on what the reasons
might have been.
Senator Sarbanes. Okay, but it was included in the national
defense authorization bill, which, of course, is the big
authorization bill handled by the Armed Services Committees.
Ms. Patrick. Yes, sir, and I am sure it was not an intended
slight.
Senator Sarbanes. That is a complete departure from past
precedent with respect to the DPA, and I was interested to know
why that occurred.
Ms. Patrick. We will provide that for the record, sir.
Senator Sarbanes. All right. I would like to have that. Mr.
Paulison, I noticed in your statement you said, ``The DPA is
the President's primary authority to ensure the timely
availability of industrial resources for both military and
civil emergency preparedness and response.'' This goes in part
to the question that Senator Corzine put.
Does anyone have any doubts that the authorities of the DPA
can be used for efforts to enhance the preparedness of U.S.
critical infrastructure, such as the financial or
telecommunications systems, to withstand disruption that might
occur from terrorist attacks or, indeed, from other natural or
manmade events? Is it your reading of the DPA that the
authorities provided there are adequate for these purposes?
Mr. Paulison. Yes, sir, that is our understanding. It can
be either civil or military. The DOD uses it for military, and
I think the other agencies here would use it for civil
emergencies or disasters within the United States.
Senator Sarbanes. What is the view of other members of the
panel on this rather important question, I think?
Mr. Bhatia. Again, Senator, from the Commerce perspective,
we asked our chief counsel's office to look at the issue. They
believe that the 1994 amendment under the Stafford Act, which
broadened the definition of ``national defense'' to include
``emergency preparedness'' is a broad term that encompasses
many programs that could be used to protect critical
infrastructure in a preventive, prepa-
ratory, responsive, or recuperative manner.
I would also point out that a number of the exercises of
DPA power that I referenced in my testimony are fundamentally
critical infrastructure protection-related activities--for
instance, support-
ing the Transportation Security Administration in the
acquisition of explosive detection equipment, and the FBI, for
instance, with respect to telecommunication systems.
So, I think we see it as a statute by virtue of the
amendments that were wisely adopted 10 years ago to be
sufficiently flexible, but it is something that we will
continue to be attentive to.
Ms. Swink. Yes indeed, with respect to Energy, we are still
referring to the 1982 Department of Justice memorandum, which
makes clear that it might be useful to use the DPA authorities
in responding to energy crises.
Senator Sarbanes. Thank you.
Mr. Chairman, I see my time is up. I would like to just
make one final point.
Mr. Paulison, you are now the Director of the Preparedness
Division within the Emergency Preparedness and Response
Directorate of the Department of Homeland Security; is that
correct?
Mr. Paulison. Yes, sir, that is correct.
Senator Sarbanes. You used to be the Director of the
Federal Emergency Management Agency; correct?
Mr. Paulison. No, sir. I was the U.S. Fire Administrator,
and still hold that title. The Director of the Federal
Emergency Management Agency was Joe Allbaugh, and then Mike
Brown.
Senator Sarbanes. Well, if they were still around, would
they now be the Director of the Preparedness Division; is that
what
happened?
Mr. Paulison. Yes, sir. Mike Brown is now the new Under
Secretary for----
Senator Sarbanes. Okay. Now, do you think that our homeland
security or any security has been enhanced in any marked way
by now having a Preparedness Division within the Emergency
Preparedness and Response Directorate of the Department of
Homeland Security? Why don't we just continue with the Federal
Emergency Management Agency? We all knew it, and I am not sure
that we loved it, but we respected it, and it seemed to do its
job--oh, you do not have to answer that question.
[Laughter.]
Chairman Shelby. Well, I think there is more respect than
love up here.
Mr. Paulison. I will take that comment back to Secretary
Ridge.
Senator Sarbanes. All right. Thank you.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Bennett.
COMMENTS OF SENATOR ROBERT F. BENNETT
Senator Bennett. Thank you, Mr. Chairman.
My questions are going to sound somewhat redundant because
I am going in the same direction as Senator Corzine and Senator
Sarbanes. But I have been trying for several years to get a
firm statement out of the Administration with respect to DPA's
role in critical infrastructure. I wrote to the President on
October 31, 2001, following the attack on September 11, trying
to get a clear answer, and to date, I have not felt that I have
had one, so let me ask the direct question.
In the opinion of the Administration, may the President of
the United States invoke the DPA to address critical
infrastructure concerns such as critical infrastructure
protection or critical infrastructure restoration--the kind of
thing that Senator Corzine was responding to. Is there a
``yes'' or ``no''?
Mr. Paulison. Yes, sir, I need to answer that. I have just
taken over the responsibilities of the DPA for Homeland
Security, and I do have your letter, and I will offer a
personal apology that you have not received an answer.
Senator Bennett. I am not worried about that.
Mr. Paulison. I understand. But the answer is yes, we do
feel that the DPA authority gives us the ability to handle
critical infrastructure, and we are still reviewing that and
will make sure of that; but right now, the answer is yes.
Senator Bennett. Good. Then, let me give you a hypothetical
that will help focus the question from my point of view.
As you know, my almost obsession up here is cyber-
terrorism, attacks through hackers, the computers going down,
and so on. So let us assume that a few disgruntled employees of
a major commercial bank exploit their positions to sabotage and
take off-line the critical data networks of the entire
financial sector, and they also
prevent normal redundancy and backup measures from being
implemented. We have had hearings on that very recently in this
Committee.
So let us establish a worst case scenario where a major
bank hacks into the network of this financial institution and
not only shuts it down but also shuts down the redundancy.
Okay. Now, Company ``X'' is the sole provider of the key
hardware and software necessary to restore the critical data
points, so the affected financial institutions all immediately
call Company ``X'' and say, ``Send us your widgets so we can
fix this.'' All right. Company ``X'' is loaded with commercial
and military orders, and they say, ``We cannot supply your
needs for another 6 months.''
May the President invoke DPA and use DPA's contract
priority provisions to override those previous contracts and
say you can supply what is necessary to get the financial
sector back up with the software and hardware that you have and
delay your deliveries someplace else?
Mr. Paulison. Although I hate hypothetical questions----
Senator Bennett. We made it as pointed as we could.
Mr. Paulison. Yes, sir. Based on what you have laid out, my
understanding would be that yes, we could do that.
Senator Bennett. Okay. You are answering them all properly.
If the President may use the DPA, do you believe it would
be the Administration's policy to do so? In other words, will
the President as a matter of policy give as much attention to
critical infrastructure in the cyber world as he might, for
example, in Ms. Swink's world of energy? I know you cannot
forecast what the President would do, but what would you
recommend to the President?
Mr. Paulison. The answer is yes. How we function in today's
society, our cyber world is extremely important in the
protection of this country, and obviously, my advice would be
yes, that we
do that.
Senator Bennett. Mr. Chairman, I have learned in business
that when you have made the sale, get out of the room, so, I
will not ask any more questions.
Thank you.
Mr. Paulison. Thank you, Senator Bennett.
Chairman Shelby. Senator Bennett, you are entitled to stay
here, and we would welcome you to stay here.
Senator Allard, do you have any further observations or
any questions?
Senator Allard. I do not, Mr. Chairman.
Chairman Shelby. Thank you.
I have a question for the whole panel. The Defense
Production Act was passed at a time and under circumstances
that clearly indicated that it was intended to provide the
means to respond to emergency contingencies, primarily armed
conflict. It has been reauthorized and modified more times than
one can count since its passage in 1950. Over the years, there
has been a noticeable evolution in the declaratory policy from
which the Act's authority should reasonably follow toward
greater apparent concern about the peacetime industrial base
required to ensure adequate levels of military readiness.
It can be inferred that the Defense Production Act has
become more and more oriented toward questions of broader
industrial policy than perhaps was originally intended. For
example, the current Section 2062, Declaration of Policy,
begins with the apparently obligatory finding--and I will
quote:
The vitality of the industrial and technological base of
the United States is a foundation of national security that
provides the industrial and technological capabilities employed
to meet national defense requirements in peacetime and in time
of national emergency.
In addition, implementing Executive Orders over the years,
especially Executive Orders 12742 in 1991, and 12919 in 1994,
have explicitly articulated the importance of maintaining a
robust defense industrial base.
Executive Order 12919, for example, stated: ``The U.S. must
have an industrial and technology base capable of meeting
national defense requirements and capable of contributing to
the technological superiority of its defense equipment in
peacetime and in times of national emergency. The domestic
industrial and technological base is the foundation for
national defense preparedness.''
Can the panel comment on this issue? Executive Order 12919
was issued under the authority of the Defense Production Act.
So much of DPA's authorities are intended to provide the
President the means to respond to an emergency, especially the
outbreak or imminent outbreak of armed conflict. Hence, the
establishment of the Defense Priorities and Allocation System
and the role of the Secretary of Commerce in administering it.
I know this is long and involved, but you are familiar with
this.
In the view of the agencies represented here today, how
should the DPA's authorities be drafted in order to provide the
Federal Government the explicit authorities it apparently needs
in order to better meet the demand set forth in its own
Declaration of Policy Could you comment on the practical
utility in terms of defense industrial base preservation of the
Berry amendment?
Dr. Sega--I know that was long, but this is technical stuff
that we are dealing with.
Mr. Sega. Yes, it is technical. I will start, because I
will only offer a piece of the answer, I think, and in the area
of Title III, which is the area of my responsibilities, the
need for us to prepare in peacetime for wartime is essential.
In the case of the radiation hardened electronics, we need
to buy the equipment and design the devices, build the devices,
and put them into our strategic missile systems.
Chairman Shelby. Absolutely.
Mr. Sega. So the need to provide the DPA authorities in
this realm of bringing forward technologies that are relatively
unique is important in the area that I have responsibility.
Now, I will pass it off and have that answer expanded as we
go forward.
Chairman Shelby. Ms. Patrick.
Ms. Patrick. We certainly agree with the spirit of your
question and some of the implications, but I think it is also
very important to point out that we vouch for the vitality and
the responsiveness and the productivity of our defense
industrial base using a number of means available at our
disposal.
The Title I DPAS provisions are particularly imperative in
times of war or where the prioritization of contracts is not
suitable for a given contingency during peacetime, and I would
like to compliment Senator Bennett on his perfect example of
how it is we would use the DPA authority even in the case where
the model was not an element of the financial system but a key
defense contractor, say, who by hacking had lost its critical
designs or was no longer able to operate its machine tools. It
is a ubiquitous problem throughout this state-of-the-art
industrial base that we have in this country, so your example
was perfect.
But it is also important to remember that one of the key
sources of innovation and direction to the defense industrial
base is the overall defense budget and the way we allocate that
defense budget and the way we see to it that the defense budget
expresses the needs and vision of the Department and most
specifically the needs of the warfighter.
So there are a number of tools at our disposal for making
sure we have a vibrant defense industrial base. DPAS in Title I
is one of them. Title III, of course, is also very important,
where we see that we have gaps or there is a capability that we
are not getting otherwise--all very important to the future of
the country.
Chairman Shelby. Mr. Bhatia.
Mr. Bhatia. Mr. Chairman, your question touches on a lot of
critical parts of the DPA. One that particularly resonated for
me was the question of industrial policy and whether this is,
in fact, a form of industrial policy.
Chairman Shelby. There is a little difference between basic
industrial policy that a lot of us are very nervous about and
priorities for defense.
Mr. Bhatia. Right.
Chairman Shelby. They are two different things, and I think
you have to make that----
Mr. Bhatia. Absolutely, absolutely. We wear two hats--
again, two hats--but play a number of roles in this. On the one
hand, we are particularly attuned to the concerns of American
industry and American business. We at the same stage play the
role of administrator of the DPAS's regulations and the
mediator between the national defense, armed forces, and
industry where problems arise.
One thing I would point out--and I think this touches back
on a question that Senator Allard raised--is how few instances
of real problems we see coming up in this area. Last year, my
understanding was that there were 300,000--or some number like
that--priorities put on contracts. We had requests for
mediation assistance in 20, and those were all, I believe,
resolved amicably between the parties.
Although it is a statute with very strong powers in
situations of national emergency--in terms of its day-to-day
administration, we see it as being something that is not
market-distorting and not industrial policy being put into
action.
Chairman Shelby. Mr. Paulison.
Mr. Paulison. I think Ms. Patrick laid it out very clearly,
and I really have nothing else to add. She did a great job.
Chairman Shelby. Ms. Swink, do you have any comment on
that, other than what has been said?
Ms. Swink. I have one comment, and that is the whole
situation of cascading effects and interrelationships of the
critical infrastructures are absolutely key for sustaining that
robust industrial base. So, I think that that is an important
aspect of the DPA, that when we do have emergencies that appear
only in one critical
infrastructure, the reality is that you could do major harm to
the
industrial base without quick response.
Chairman Shelby. I think so, too.
I have another question for you, Ms. Swink. Two American
Presidents have found it appropriate to utilize Defense
Production Act authorities to provide relief to the State of
California during its self-imposed energy crisis. The
justification proffered was that the rolling blackouts were
impeding the ability of both the Space Agency and the State's
military installations to execute their missions in support of
the national defense.
Two years ago, the Energy Department's then acting general
counsel provided this Committee a fairly comprehensive
description of how the energy crisis came about. There was no
hint of the crisis being the result of anything other than the
State's own flawed
energy policy.
Energy security is clearly well within the mandate of the
Defense Production Act. Section 2076 designates energy as a
``strategic and critical material,'' placing it alongside less
abstract strategic and critical materials like cobalt and
chromium.
Given the importance of oil-rich regions of the world to
U.S. foreign and national security policies, I believe this is
appropriate. What is less clearly appropriate, however, is the
notion that the
jurisdiction's self-imposed energy problem is within the spirit
let alone the letter of the DPA. The Department of Energy is
designated certain responsibilities within the Defense Product
Act.
The Committee's purpose in asking the Department to testify
today was to request a clarification of its understandings of
the nexus between isolated energy problems that do not result
from hostile action--unless, of course, one considered
California State government a threat to its own well-being--and
that do not affect the entire Nation or threaten its national
defense.
Could you now or for the record provide this Committee the
Energy Department's understanding of its role and
responsibilities in implementing the Defense Production Act and
what criteria you use at the Department of Energy in
determining that a threat to national defense has materialized
warranting its intervention in crises like that which affected
California?
If you want to do it now, or you want to do it in more
detail----
Ms. Swink. In more detail for the record, please.
Chairman Shelby. Okay; for the record, if you would do
that.
I have another question. Dr. Sega, I will direct this to
you. The Defense Department has been using the DPA authorities
to recapitalize the industrial base for radiation hardened
electronics--you have already mentioned this--and its fiscal
year 2004 budget request includes $200 million, I believe--is
that right--to continue this work.
Mr. Sega. That is right.
Chairman Shelby. According to the Defense Threat Reduction
Agency, which is not represented here today, only two vendors
still make radiation hardened parts. I assume that refers to
Honeywell and BAE Systems; is that correct?
Mr. Sega. That is correct.
Chairman Shelby. I understand, however, that a $275 million
contract announcement was made last year for Mission Research
Corporation in support of the DTRA's radiation hardened
microelectronics program.
It is also my understanding that Boeing and Peregrine
Semiconductor have also been awarded contracts in the past few
years to support this effort. In addition, there is U.S.
Semiconductor Corporation, Intel, and Lockheed Martin.
Could our witnesses--and could you, from the Department of
Defense, too--help us and provide the Committee a sense of the
state of the industrial base for hardened electronics to date,
which I think is very important for the national security? How
has it changed since the end of the cold war, during which we
were placing a lot of emphasis on hardening weaponry and
related command, control, and communication systems against the
threat of electromagnetic pulse?
I understand the Department currently estimates a total
cost of $167 million for this project, but how much has been
spent to date on this effort, both in contracts signed under
DPA authorities and in total, and what is the anticipated
requirement for radiation hardened parts, and what is the
Department's goal for recapitalizing that industry?
I know that is a lot in one question.
Doctor, do you want to start?
Mr. Sega. Yes, Mr. Chairman, I will start to answer the
question.
The request in fiscal year 2004 for the Radiation Hardened
Electronics Capital Expansion Project, I believe, is in the
area of $65, $66 million, and the total cost of this CAPEX
project on radiation hardened parts to a feature size, which is
one of the pieces that we have to talk about, of .25 micron and
capable of going toward .15 micron, is to be at $167 million.
The request is for $200 million in the event of--we do not
expect that cost to go beyond $167 million, so it would be the
flexibility given by the request.
That is for the equipment for a certain class of components
that are engaged in this radiation hardened problem. I chair a
Radiation Hardened Electronics Oversight Council, so it is the
leaders in the defense community, those that need it, those
that are producing it, those that are designing chips for the
production
lines and so forth, and it is from that work that there is a
road
map built for guiding us forward on the radiation hardened
requirements.
The ``high/hard'' category generally involves nuclear
weapons in terms of what effect they would potentially have on
our electronics. Some of the effects are in the electromagnetic
pulse area; others are in the particle or dose rate kinds of
things. The facilities that are being funded, BAE and
Honeywell, are in that latter category of components. But there
are many parts of strategic and satel-
lite systems that need radiation hardness, so this is
addressing
one part of it. We do have a process to get us to the net
requirements----
Chairman Shelby. You have to get to the whole, don't you?
Mr. Sega. Yes, absolutely, absolutely.
Chairman Shelby. Okay.
Ms. Patrick, will you stay with what he has said?
Ms. Patrick. I have nothing to add; absolutely.
Chairman Shelby. I have one more question. Despite the
Defense Department's emphasis today on incorporating into its
weapon systems and platforms commercial off-the-shelf
technologies, there is no question, I believe, that modern
military requirements are simply too demanding for the
Department to become dependent on that approach, economically
attractive though it might be.
Certainly such an approach is desirable, but presumably,
the U.S. military seeks capabilities well beyond what is found
today off the shelf in the commercial market.
Has the Defense Department formulated a long-range plan for
preservation of the industrial base necessary to ensure
adequate levels of military readiness in the years ahead? The
Committee is aware of the uses to which the Defense Production
Act authorities are applied, but is it fair to suggest that
what we have seen to date represents more of an ad hoc,
piecemeal approach than something representative of a well-
thought-out long-term strategy?
In addition, would you comment on the defense industrial
base language included in the House-passed version of the
defense authorization bill?
Ms. Patrick, do you want to take that one?
Ms. Patrick. Yes, I will certainly take a stab at that.
Chairman Shelby. First of all, the commercial shelf is not
going to provide all of our needs as much as we would like to
buy it sometimes because it is cheaper; right?
Mr. Sega. That is correct, Mr. Chairman.
Ms. Patrick. I think there is always a balancing act
between overspecification of military end-items that carries
with it a presumption that only specific military components
can fill a given requirement--and on the other hand the cost
benefits to be gained if indeed you can successfully
incorporate commercial off-the-shelf equipment into weapon
systems.
One of the things that I think is very important in order
to procure what you need for the warfighter is to get that mix
right--in other words, not to overpay for things that are
commercially available. What the Department or our high-
technology companies do is application of fairly routine things
into very complex solutions or very high-technology systems,
and to make sure that we do not overpay where we can save money
by buying commercial off-the-shelf equipment.
So, I think it is very important to keep an eye on that.
And the other point that I think----
Chairman Shelby. Do you keep an eye on it?
Ms. Patrick. We do keep an eye on it. And I think the other
thing that bears mention is that in many of the industrial base
studies that we have done over the last many years, many of the
key solutions to some of our most demanding challenges are
likely to come not just from legacy defense companies but from
commercial suppliers and indeed from emerging defense companies
that we expect will have their roots as commercial suppliers.
So, we have to make sure that we get the technology where it is
most available--and it is not true in all cases that the
defense applications are that much ahead of the commercial
market. That is certainly the case in some of the IT
applications. Some of the applications so critical for homeland
security and emergency response actually have come to us and to
Homeland Security from the commercial vendors, and it really
would be a pity to insist on overspecifying systems that are
immediately available if you can buy them on the open market.
Chairman Shelby. Yes. Thank you.
Senator Allard, do you have any comments?
Senator Allard. I have just one question. One of the things
that I see as a possible threat to national security and would
certainly be an issue is if our rare metals and elements and
whatnot were to become unavailable. For example, the Endangered
Species Act may prevent us from extracting a necessary element
or metal. Is there authority in current law that allows defense
priorities to override perhaps the Endangered Species Act as
far as extracting needed minerals from the ground?
Ms. Patrick. I do not know the specific case of the
Endangered Species Act, but let me take that----
Senator Allard. Do you feel you have that authority?
Ms. Patrick. I think in most cases, we have ample authority
to manage the defense industrial base to the benefit of the
warfighter, yes, I do.
Senator Allard. I was thinking about energy, for example--
maybe I should direct this to Ms. Swink--on energy needs. If a
shortage of electricity suddenly develops for one of our major
production manufacturers in California--and California has a
number of them, and something were to happen to the lines,
preventing the rebuilding of those lines or perhaps building an
alternative line system, do you feel that you have the
authority to override existing law, for example, the Endangered
Species Act. Would the ESA or other laws prevent you from
reconstructing the line? I think you could override existing
law if it were a local community concern, but for something
that would be a national law like the Endangered Species Act,
could you override that to reconstruct lines if our national
security were at stake?
Ms. Swink. We will have to supply a response for the
record.
Senator Allard. Would you do that, please?
Ms. Swink. Yes.
Senator Allard. Thank you, Mr. Chairman.
Chairman Shelby. Thank you, Senator Allard.
I want to thank all of you for appearing here today. I
think what you are doing is very important, and what this Act
allows you to do is more important.
Thank you all.
The hearing is adjourned.
[Whereupon, at 11:30 a.m., the hearing was adjourned.]
[Prepared statements, response to written questions and
additional material supplied for the record follow:]
PREPARED STATEMENT OF SENATOR WAYNE ALLARD
I would like to thank Chairman Shelby very much for holding this
hearing on reauthorization of the Defense Production Act. I am pleased
to see that you are actively exercising the Committee's authorizing
jurisdiction, and I look forward to the opportunity to working with you
on reauthorization of the Defense Production Act.
It would be easy to simply ignore the need for reauthorization.
After all, we are coming off of major military victories, so there
would not seem to be any direct need for the Defense Production Act.
However, it is tools such as the Defense Production Act which can help
our nation be well prepared for military events or domestic
emergencies.
As a member of the Armed Services Committee, I spend a great deal
of time on the issue of military readiness. It is critical that our men
and women in uniform have access to the supplies and technology that
they need in a timely manner. The Defense Production Act gives them
this capability. Furthermore, it can help promote new technologies that
will reinforce our military efforts.
I would like to thank our witnesses for being here today to share
their comments on reauthorization of the Defense Production Act. I look
forward to your testimony.
----------
PREPARED STATEMENT OF RONALD M. SEGA
Director, Defense Research & Engineering
U.S. Department of Defense
June 5, 2003
Good morning, Mr. Chairman and Members of the Committee. I
appreciate the opportunity to share with you the Department of
Defense's (DOD) views regarding the Defense Production Act (DPA) and
the role it plays in helping to obtain the goods and services needed to
promote the national defense. Although enacted originally in 1950, the
Act provides statutory authorities still relevant and necessary for the
national defense in the 21st Century.
Let me start by saying a few words on why the Defense Production
Act (DPA) is important to the Department of Defense. A strong domestic
industrial and technology base is one of the cornerstones of our
national security. The DPA provides the Department the tools required
to maintain a strong base, responsive to the needs of our armed forces.
A key component of the DPA is Title III which will be the focus of my
testimony. The authorities contained in the DPA continue to be of vital
importance to our national security and I want to express the
Department's support for reauthorizing the Act through September 30,
2008. The Deputy Under Secretary of Defense for Industrial Policy, Miss
Suzanne Patrick, will discuss Title I and Title VII.
Title III provides the President unique authorities that are being
used to establish, expand, and maintain essential domestic industrial
capacity needed to field advanced systems for today and the future. The primary objective of the Title III program is to work with U.S. industry
to establish economically viable production capabilities for items
essential to our national security. The Title III program meets this
objective through the use of incentives to
stimulate private investment in key industrial capabilities. The
incentives most used by the Department include sharing in the costs of
capital investments, process improvements, material qualification, and
providing when necessary, a purchase commitment that will ensure a
market for their product. Through these incentives, domestic industry
is encouraged to take on the business and technical risks associated
with establishing or maintaining a commercially viable production
capacity.
The Title III program is also being used to transition emerging
technologies. Title III can facilitate the transition of new
technologies by first eliminating market uncertainties and reducing
risks that discourage potential producers from creating new capacity.
Second, Title III incentives can create more efficient, lower cost,
production capabilities, which reduce prices and increase demand.
Third, Title III projects can generate information about the
performance characteristics of new materials and support testing and
qualification to promote the incorporation of these materials into
defense systems. Without a program like Title III, the insertion of
these new technologies, at best, could be delayed for many years.
As a means of assuring Congressional oversight, Title III projects
may not be initiated until a Presidential determination has been made
and the project has been identified in the Budget of the United States.
The Presidential determination verifies that: 1. the shortfall being
addressed by the Title III project is essential for national defense;
2. industry cannot or will not on their own establish the needed
capacity in a timely manner; 3. Title III is the most cost effective or
the most expedient method for meeting the need; and 4. defense and
commercial demand exceed current domestic supply.
A success story is the best way to highlight the benefits of the
program. Gallium arsenide is a semiconducting material used in the
fabrication of advanced electronic devices. It can provide advantages
in terms of speed, power consumption, performance, and reliability over
more commonly used semiconductor materials, such as
silicon. Electronic devices built on gallium arsenide semiconductors
are enabling technologies for a wide variety of defense weapon systems including radars, smart weapons, electronic warfare systems, and communications. These semiconductors can be found in such systems as the Airborne Early Warning/Ground Integration System, the B-2 Bomber, the
Longbow Apache helicopter, fighter aircraft (including F-15, F-16, and
F-18), missiles (including Patriot, Sparrow, and Standard), and various
radar systems.
At the outset of this Title III project, the long-term viability of
U.S. gallium arsenide wafer supplier base was in doubt. Foreign firms
dominated the industry with a 75 percent world market share. United
States firms were discouraged from competing more vigorously by the
relatively small market for these wafers, by the dominant market
position of the foreign suppliers, and by the high capital investment
required to remain competitive. Foreign firms led the way on pricing,
availability, and the pace of technological advancement.
With the help of Title III, the U.S. producers made a dramatic
turnabout. By 2000, these contractors accounted for 65 percent of wafer
sales worldwide. Their combined sales of gallium arsenide wafers grew
by nearly 400 percent. In addition, wafer prices dropped by
approximately 35 percent. This reduction in wafer prices and
improvement in wafer quality resulted in significant reductions in
defense costs for critical electronics.
Title III Projects
There are currently eight active Title III projects and DOD is
initiating two new projects this year, one of which is to establish
production capacity for Yttrium Barium Copper Oxide (YBCO)
superconductor wire. This initiative will establish a domestic
production capacity for YBCO, a high temperature superconductor
material, which could significantly enhance the development of future
directed energy weapons and electric power generation. Title III
projects address a variety of advanced materials and technologies and
generally fall into the following two categories:
Electronic Materials and Devices
Projects in this category include recently completed projects in
gallium arsenide, and indium phosphide wafers and ongoing projects for
silicon carbide wafers, and radiation hardened electronics. These are
enabling technologies, without which potential advances in
microelectronics would be far more limited. These materials offer
advantages in terms of faster device performance, greater resistance to
radiation and temperature, reduced power requirements, reduced circuit
size, increased circuit density, and the capability to operate at
higher frequency levels. Advances in electronic materials can enable
new capabilities for defense systems and improvements in old
capabilities.
Advanced Structural Materials
Recently concluded projects established production capabilities for
discontinuous reinforced aluminum, aluminum metal matrix, and titanium
metal matrix composites. These new structural materials offer
improvements in terms of the strength, weight, durability, and
resistance to extreme temperatures. These benefits are particularly
important in aerospace applications.
Projects initiated in fiscal year 2002 include:
Radiation Hardened Microelectronics
This project illustrates the key role Title III plays in providing
our armed forces with the technologies they need to be successful on
the battlefield. We were in danger of losing our last remaining
suppliers of these critical components needed for our strategic missile
and space systems. Because of the small number of components that the
Department buys and limited commercial demand, our current suppliers
were unable to generate sufficient revenues to purchase the production
equipment needed to produce radiation hardened microelectronics at the
feature size needed to meet future defense requirements. Title III is
helping these companies through equipment purchases and modernization
to remain viable suppliers, capable of supporting future defense
requirements. Without Title III, it is likely we would have lost this
critical production capability.
Radiation Hardened Microprocessors
Complimentary of the radiation hardened project for
microelectronics is a project for radiation hardened microprocessors.
Current radiation hardened microprocessors are several generations
behind commercial microprocessors. Defense space systems require high
performance and protection against high radiation environments. This
project will enable the production of an advanced commercial
microprocessor capable of meeting the processing and radiation hardened
requirements for military applications. The radiation hardened
microprocessors will be based on current commercial microprocessors.
Benefiting most from this project will be advanced defense satellite
systems.
Rigid-Rod Polymers
The goal of this project is to establish a domestic production
capacity for Rigid-Rod Ultra-High Strength Polymeric Materials. Rigid-
rod polymeric materials can be used as metal substitutes for critical
electronic, weapon, and personnel protection systems. The focus of the
project is to transition the technology from a small scale R&D process
and establish an initial production capacity of approximately 100,000
pounds annually. Potential applications include replacement for brass
shell casing in small arms ammunition, foam core to replace honeycomb
core in aircraft, replacement for metal castings, and lightweight
thermal barriers and doors.
Wireless Vibration Sensors
The goal of this project is to establish an affordable domestic
production capacity for high-quality wireless vibration sensors. The
project could improve the timely production and fielding of affordable
smart sensors for Condition-Based Maintenance. Condition-Based
Maintenance is a key enabling tool to lower asset lifecycle cost by
providing online measurement and quantification of the condition and
maintenance needs of mechanical systems such as engines and power
trains on aircraft, vehicles, and ships.
Reauthorization of the DPA
Most provisions of the Defense Production Act are not permanent law
and must be renewed periodically by the Congress. We are requesting a
reauthorization of the authorities contained in the Defense Production
Act until September 30, 2008. In addition, we are requesting to
increase the statutory authorization limit contained in Section
303(a)(6)(C) to $200 million to correct the industrial resource
shortfall for the radiation hardened electronics project. The DPA
requires the Department to obtain specific authorization for any Title
III project that exceeds $50 million. The expected cost of the
radiation hardened electronic project is $167 million. However, we are
asking for authority up to $200 million in the event of unexpected cost
increases for the project.
We are also requesting to make Section 707 permanent law to provide
continued liability protection to contractors executing priority
contracts in compliance with the Defense Production Act.
Conclusion
In conclusion, the DOD needs the Defense Production Act. It
contains authorities that exist no where else. Current world events
make these authorities more important than ever. The DPA is a proven
mechanism. Its array of authorities has helped us meet the challenges
of the last 50 years. By judiciously applying its authorities to the
challenges facing us today, the DPA will see us to a more secure
future. I hope that I have conveyed to you the significant role the
Defense Production Act plays in ensuring our Nation's defense. The
Department fully supports the proposed bill to reauthorize the DPA.
Thank you for the opportunity to discuss the Defense Production
Act.
----------
PREPARED STATEMENT OF SUZANNE D. PATRICK
Deputy Under Secretary for Industrial Policy
U.S. Department of Defense
June 5, 2003
Good morning, Mr. Chairman and Members of the Committee. I
appreciate the opportunity to share with you the Department of Defense
(DOD) views regarding the Defense Production Act (DPA). This Act is
critical to DOD, both in time of contingency or conflict, as well as
during peace. It helps DOD obtain the goods and services needed to
promote the national defense. Although enacted originally in 1950, the
Act provides statutory authorities still relevant and necessary for the
national defense in the 21st Century. I also want to express the
Department's support for reauthorizing the Act through September 30,
2008.
Let me start by saying a few words on why the Defense Production
Act is important to the Department of Defense. A strong domestic
industrial and technology base is one of the cornerstones of our
national security. The Act provides the Department of Defense tools
required to maintain a strong base that will be responsive to the needs
of our armed forces. Specifically, it provides the President the
authority to: (1) direct priority performance of defense contracts and
allocate scarce materials, services, and industrial facilities; and (2)
establish, expand, or maintain essential domestic industrial capacity.
The authorities in this Act continue to be of vital importance to our
national security.
My testimony today focuses on one specific provision of the Defense
Production Act, Title I. I particularly want to describe for you why
Title I authority is important and how we are using it today.
Title I
Title I (Priorities and Allocations) of the DPA provides the
President the authority to: 1. require preferential performance on
contracts and orders, as necessary or appropriate to promote the
national defense; and 2. allocate materials, services, and facilities
as necessary or appropriate to promote the national defense.
Executive Order 12919 delegates these authorities to the Federal
Departments and Agencies. The Department of Commerce (DOC) is delegated
responsibility for managing industrial resources. To implement this
authority, the Department of Commerce administers the Defense
Priorities and Allocations System (DPAS). The DPAS: 1. establishes
priority ratings for contracts; 2. defines industry's responsibilities
and sets forth rules to ensure timely delivery of industrial products,
materials, and services to meet approved national defense program
requirements; and 3. sets forth compliance procedures.
The Department of Commerce has delegated to the Department of
Defense authority under the DPAS to: 1. apply priority ratings to
contracts and orders supporting approved national defense programs.
(However, the Department of Defense is precluded from rating orders for
end items that are commonly available in commercial markets and for
items to be used primarily for administrative purposes, for example,
office computers); and 2. request the Department of Commerce to provide
Special Priorities Assistance to resolve conflicts for industrial
resources among both rated and unrated (for example, nondefense)
contracts and orders; and to authorize priority ratings for allied
nation defense orders in the United States when such authorization
furthers U.S. national defense interests.
Except as noted above, all Department of Defense contracts are
authorized an industrial priority rating. The authorities, applied via
contract clauses, are like insurance, always present but only executed
when absolutely necessary. The Department of Defense uses two levels of
rating priority, identified by the rating symbols ``DO'' or ``DX.'' All
DO rated orders have equal priority with each other and take preference
over unrated orders. All DX rated orders have equal priority with each
other and take preference over DO rated orders and unrated orders. If a
contractor cannot meet the required delivery date because of scheduling
conflicts, DO rated orders must be given production preference over
unrated orders and DX rated orders must be given preference over DO
rated orders and unrated orders. Such preferential performance is
necessary even if this requires the diversion of items being processed
for delivery against lower rated or unrated orders. Although the DPAS
is largely self-executing, if problems occur, the contractor or the
Department of Defense can request the Department of Commerce provide
Special Priorities Assistance to resolve the problem.
Although, important in peace, the DPAS is indispensable in the
event of conflict or contingency. DPAS gives the Department of Defense
the necessary power and flexibility to address critical warfighter
needs involving the industrial base effectively and expeditiously.
While the Department of Defense has used Title I since the 1950's,
recent history, and operations such as Desert Shield/Storm, Bosnia,
Kosovo, Enduring Freedom, and Iraqi Freedom have demonstrated its
continued importance.
Predator Unmanned Aerial Vehicles (UAV's) armed with Hellfire
missiles were used for the first time in Afghanistan. They included an
upgraded sensor package, the Multi-Spectral Targeting System (MTS). The
contractor's original delivery date for three systems was March 2003.
Using DPAS, we jumped this order to the head of the production queue
and the contractor was able to deliver three systems in December 2001,
18 months earlier than originally promised. Since that time, we have
used DPAS to accelerate forty additional Multi-Spectral Targeting
Systems. We all are aware of the dramatic impact manned Predators had
in waging war in Afghanistan, and most recently in Iraq.
During Operations Enduring Freedom and Iraqi Freedom, a new lighter
kind of body armor proved remarkably effective in minimizing fatal
battlefield injuries. That latest generation Army and Marine body armor
is comprised of protective vests with inserts made of an extremely
tough fiber--Spectra--bonded to a ceramic plate. We used DPAS authority
to direct the Spectra manufacturer's production to the highest priority
Army and Marine requirements in order to maximize small arms protection
for the warfighters.
For Operation Iraqi Freedom, the U.K. Ministry of Defence needed
Precision Lightweight Global Positioning System GPS Receivers. The U.K.
requirements were critical to the warfighting effort. We used DPAS to
give the U.K. order an industrial priority rating and move it ahead of
some lesser priority U.S. orders that were not needed for deployed or
deploying forces. The U.K. received the equipment in a very timely
manner to support their forces in theater.
The authority to provide preferential treatment for foreign defense
orders in the United States when such treatment promotes national
defense interests is increasingly important. Among the consequences of
globalization and industrial restructuring are the creation of
multinational defense companies and an increasing degree of mutual
defense interdependence. Reciprocal industrial priorities systems
agreements with our allies encourage them to acquire defense goods from
U.S. suppliers, promote interoperability, and simultaneously provide
increased assurance that the DOD's non-U.S. defense suppliers will be
in a position to provide timely supplies to DOD during both conflict/
contingency situations and peacetime.
NATO has in place a NATO-wide agreement to encourage reciprocal
priorities support within the alliance.
In addition to a NATO-wide agreement we are establishing formal
bilateral agreements with key allies and trading partners. These
provide an opportunity to establish stronger government-to-government
agreements for reciprocal priority support, more quickly. The United
States has a longstanding bilateral priorities support agreement with
Canada. Within the past 3 years, DOD representatives have had
discussions about such bilateral agreements with several allies and
friends. The Department of Defense and United Kingdom Ministry of
Defence representatives have now negotiated a formal bilateral
agreement that commits each nation to establish and maintain a
reciprocal priorities system and to provide the other nation reciprocal
access to that system. Similar agreements are being discussed with
Australia, Spain, Norway, the Netherlands, Italy, and Sweden.
During peacetime, the DPAS is important in setting priorities among
defense programs that are competing for scarce resources and industrial
output. Delayed deliveries of production parts and subassemblies to
producers of weapon systems have consequences in terms of system cost
and ultimately on the readiness of operational forces. DPAS gives the
Department of Defense an opportunity to prioritize deliveries and
minimize cost and schedule delays among DOD orders, and to support
other agencies and allied Nation defense procurements in the United
States. For example: 1. U.S. State Department: DPAS was employed to
accelerate deliveries on multiple programs as part of the embassy
security protection upgrade program worldwide; 2. United Kingdom: The
U.K. contractor experienced delays in receiving Integrated Helmet Units
needed for U.K. WAH-64 Apache Longbow helicopters. DOD/DOC
authorized the use of a DO rating priority that permitted the
manufacturer to ship the Integrated Helmet Units sooner than would have
been possible without the rating authority, which allowed the
contractor to meet its production delivery requirements to the U.K.
Ministry of Defence.
DPA Title I provisions are a critical tool in DOD's arsenal. It
would be very difficult for the Department of Defense to meet its
national security responsibilities without that tool.
I want to briefly express support for the Title VII authorities,
also very important to the Department of Defense. Title VII contains
miscellaneous provisions, including enforcement mechanisms, which help
protect the Nation's security.
Extension of the DPA
As you know, most provisions of the Defense Production Act are not
permanent law and must be renewed periodically by Congress. The Act has
been renewed many times since it was first enacted. The current law
will expire September 30, 2003. We fully support reauthorizing the DPA
through September 30, 2008.
Conclusion
In summary, the Department of Defense needs the Defense Production
Act. It contains authorities that exist no where else and I hope that I
have conveyed to you the significant role those authorities play in
ensuring our Nation's defense.
Thank you for the opportunity to discuss the DPA with you today. We
look forward to working with you to ensure a timely reauthorization of
the DPA.
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PREPARED STATEMENT OF KARAN K. BHATIA
Deputy Under Secretary for Industry and Security
U.S. Department of Commerce
June 5, 2003
I appreciate the opportunity to testify today before the Committee
on the reauthorization of the Defense Production Act, also known as the
DPA.
When this Committee last convened at a hearing about the importance
of the DPA and its relevance in the post-cold war era in June 2001,
none of us could have then predicted the challenges that the United
States would soon encounter. Nor, of course, could we have predicted
the important role that DPA authorities would play in meeting those
challenges.
What we did know--and what Under Secretary Juster testified to--was
that for more than 50 years, the Defense Production Act has enabled the
President to ensure our Nation's defense, civil preparedness, and
military readiness. The use that has been made of DPA over the past 2
years--to facilitate the country's response to
September 11, to strengthen the security of our homeland and our
embassies abroad, and to support the deployment of troops in the Middle
East, in both Afghanistan and Iraq, has demonstrated that the DPA
continues to be a critically important tool in meeting contemporary
threats to our security. During that same period, the DPA has also
facilitated important analyses of our defense industrial base,
defense trade practices, and foreign investments in U.S. companies that
may pose national security issues.
Accordingly, the Commerce Department strongly supports
reauthorizing the DPA for a 5-year period. We also urge Congress to
adopt a minor clarifying amendment to the Act that I will discuss
shortly.
I will focus my comments on the DPA authorities that are relevant
to the Department of Commerce and the activities of the Department
under those authorities. The Department of Commerce plays several roles
in implementing DPA authorities that relate to the defense industrial
base. First, under Title I of the DPA, the Department administers the
Defense Priorities and Allocations System. Second, under Title III, the
Department reports to Congress on defense trade offsets. Third, under
Title VII, the Department analyzes the health of U.S. industrial base
sectors. And fourth, also under Title VII, the Department plays a
significant role in analyzing the impact of foreign investment on the
national security of the United States. I will briefly discuss each of
these roles.
Defense Priorities and Allocations System
Title I of the DPA authorizes the President: (i) to require the
priority performance of contracts and orders necessary or appropriate
to promote the national defense over other contracts or orders; (ii) to
allocate materials, services, and facilities as necessary or
appropriate to promote the national defense; and (iii) to require the
allocation of, or the priority performance under contracts or orders
relating to, supplies of materials, equipment, and services in order to
assure domestic energy supplies for national defense needs. These
authorities to prioritize contracts and require allocations for industrial resources are delegated to the Secretary of Commerce by Executive Order
12919.
Commerce has implemented these authorities through the Defense
Priorities and Allocations System (known as ``DPAS''). DPAS has two
broad purposes. First, it seeks to ensure the timely availability of
products, materials, and services that are needed to meet national
defense and emergency preparedness requirements with minimal
interference to the conduct of normal business activity. Second, it
provides an operating structure to support a timely and comprehensive
response by U.S. industry in the event of a national emergency.
Under the DPAS, the Department of Commerce delegates the authority
to use the system to obtain critical products, materials, and services
as quickly as needed by several Federal agencies including the
Department of Defense. To implement this authority, these agencies--
called Delegate Agencies--can place what are known as ``rated orders''
on essentially all procurement contracts. The prime contractors, in
turn, place ``rated orders'' with their subcontractors for parts and
components down through the vendor base. The ``rated orders'' notify
the contractors that they are
accepting contracts rated by the U.S. Government. The contractors then
must give these orders priority over unrated commercial orders to meet
the delivery dates of the rated orders. The Department has also
authorized use of this authority to meet certain critical Homeland
Security requirements as I will discuss with you in just a few minutes.
In the vast majority of these cases, the procuring Federal agency
and the contractor quickly come to mutually acceptable terms for
priority production and delivery. If the company and the Delegate agency cannot reach agreement, the Department of Commerce provides ``Special Priorities Assistance''--essentially, it functions as intermediary--to
resolve disputes and ensure that production bottlenecks for many military
and national emergency requirements are resolved.
Let me briefly highlight a few examples of the Department's work in
this important area.
Operations Desert Shield and Desert Storm
In 1990 and 1991, Commerce worked actively to administer the DPAS
in support of U.S. and allied requirements for Operations Desert Shield
and Desert Storm. We handled 135 Special Priorities Assistance cases to
assure timely delivery of critical items, including avionics components
for aircraft, precision guided munitions, communications equipment, and
protective gear for chemical weapons. In the majority of cases, due to
the Commerce Department's involvement, delivery schedules were reduced
from months to weeks or from weeks to days.
Coalition Action in the Balkans
From 1993-2000, Commerce handled 73 Special Priorities Assistance
cases in support of U.S. forces, allied forces, and NATO coalition
action in the Balkans. Although most of these cases pertained to NATO
acquisition in the United States of communication and computer
equipment, Special Priorities Assistance under DPAS also was used to
expedite the production and delivery of such military items as
antennas, positional beacons, and precision guided munitions for both
U.S. and allied forces. Priorities authority may be used to support
allied defense requirements when such support is deemed by the
Department of Defense to be in the interest of U.S. national defense.
Operations Enduring Freedom and Iraqi Freedom
The DPAS was again used extensively and successfully to secure
delivery of a number of items for both the United States and allied
forces to support the troop deployments both in Afghanistan under
Operation Enduring Freedom and then in Iraq under Operation Iraqi
Freedom. For U.S. forces, the Commerce Department worked closely with
U.S. suppliers to obtain guidance system components for ``smart bomb''
precision guided munitions, targeting and sensor equipment for our
Predator and Global Hawk Unmanned Aerial Vehicles, SATCOM radio
equipment, and ballistic material for body armor. For our allies such
as the United Kingdom, the Commerce Department worked to obtain
deliveries of such items as satellite communication radios and search
and rescue radios, helicopter equipment avionic displays and navigation
systems, night vision devices, and GPS receivers for both ground troop
use and as a ``smart bomb'' guidance system component. For the
Australians, we secured timely delivery of infrared laser targeting
equipment.
Homeland Security
In 1994, the DPA priorities and allocations authority under Title I
was extended to cover civil emergency preparedness activities by the
Robert T. Stafford Disaster Relief and Emergency Assistance Act
(Stafford Act). This extension of authority has been relied upon to
support several post-September 11 homeland security initiatives. For
example:
The Federal Bureau of Investigation was granted the DPAS
authority for the Trilogy program to upgrade nationwide FBI
communications and data processing
capabilities;
The Transportation Security Administration was granted the
DPAS support to achieve the timely delivery of explosive detection
systems equipment to screen checked baggage for explosives at more
than 400 U.S. commercial airports. This was followed by a grant of
DPAS authority for TSA's 7-year, $1 billion aviation security
Information Technology Managed Services program to upgrade airport
and airline security data processing and communications
capabilities.
Currently, the Commerce Department is working with the
Department of Homeland Security to review a request by the Customs
Service for DPAS support of its 5-year, $1.3 billion port security
Automated Commercial Environment (ACE) system to enhance port
security, especially as it pertains to the tracking and the
identification of containerized cargo.
While these examples represent only a small fraction of the total
number of exercises of the DPAS, I believe they demonstrate how DPAS
remains critically relevant to meeting increasingly complex
contemporary national defense, emergency preparedness, and homeland
security needs.
Defense Trade Offsets
Pursuant to Section 309 of the DPA, the Department of Commerce
reports to the Congress on the use of offsets in defense trade. Offsets
are industrial compensation practices required by foreign governments
as a condition of purchase of defense articles and/or services. For
example, a foreign government may agree to purchase fighter aircraft
from an American manufacturer, but can require that some of the
aircraft components be produced in the foreign country using local
suppliers. Foreign governments may also demand technology transfer,
local investment, and countertrade as part of the agreement.
In February of this year, Commerce sent its sixth report on offsets
to Congress covering the period of 1993 through 1999. From the
anecdotal reports we have received, the report appears to have been widely read and well-received by Congress and by industry. The report found that, during the covered time period, U.S. defense exports were increasingly affected by the use of offsets as part of defense sales, especially in
light of a global retrenchment in military expenditures. Specifically, we found that offsets have become an increasingly important factor in
determining contract awards, and have a direct bearing on U.S. defense contractors' access to foreign markets. Offset agreements in excess of 100 percent of the contract value are occurring with increasing frequency, and
in some cases have exceeded 300 percent of the contract.
As a matter of policy, the U.S. Government is not involved in the
development of offset proposals by U.S. defense firms as they bid on
international defense weapons projects. However, as the report
expresses, the Department of Commerce is concerned that the level of
offsets required by foreign governments appears to be rising and that
the offset package is becoming a signal factor in determining a
contract award. In the event that U.S. defense firms are prevented from
competing on a level playing field in the international marketplace,
the U.S. industrial base at both the prime and the subcontractor levels
will suffer. Accordingly, the Department of Commerce is committed to
working with U.S. industry, the Department of Defense, and foreign
governments to analyze the impact of offsets on all parties and to seek
ways to mitigate the adverse effects of offsets on competition.
Defense Industrial Base Studies
Under Section 705 of the DPA and Executive Order 12656, the
Department of Commerce conducts surveys and analyses, and prepares
reports on specific sectors of the U.S. defense industrial base. These
studies are usually requested by the Armed Services, Congress, or
industry. Using these industrial base studies, the Departments of
Commerce and Defense can, for example, measure industry capabilities in
an area such as high-performance explosives or measure industry
dependence on foreign materials in manufacturing U.S. defense systems.
The studies provide a competitive benchmark of critical sectors within
the U.S. defense industrial base and gauge the capabilities of these
sectors to provide defense items to the U.S. military. The studies also
provide detailed data that are unavailable from other sources.
Currently, the Department of Commerce has a number of studies
underway, including assessments of the air delivery (parachute)
industry, the munitions power sources (batteries) industry, the
shipbuilder's subcontractor base, and the textile and apparel industry.
When completed, these assessments will provide the Government with
information needed to understand the health and viability of each
sector.
Section 705 of the DPA provides the Department of Commerce
investigative authority regarding the defense industrial base and we
have used this authority in the performance of industrial base
assessments. While we are confident that this is consistent with
Congress' intent, it would be helpful if that intent were made explicit
in the language of Section 705. To that end, we support a slight
amendment to Section 705 to make clear that the investigative authority
``includes the authority to obtain information in order to perform
industry studies assessing the capabilities of the United States
industrial base to support the national defense.'' This amendment to
Section 705 was included in the DPA reauthorization legislation
reported out by the House Committee on Financial Services.
Foreign Investments in the United States
Finally, Commerce is involved in the exercise of authority under
Section 721 of the DPA, known as the ``Exon-Florio Provision'' (which
unlike the other provisions described above, would not expire without
reauthorization, but I describe for the sake of completeness). Section
721 authorizes the President to prohibit foreign investments in U.S.
companies that would result in foreign control when there is credible
evidence that the foreign person exercising control ``might take action
that threatens to impair the national security,'' and no other laws are
adequate and appropriate to deal with the threat. Pursuant to Executive
Order 12661, the President has designated an interagency Committee on
Foreign Investment in the United States (``CFIUS'') to assist in the
exercise of this authority. The Department of Commerce's contribution
to the CFIUS process includes providing a defense industrial base and
export control perspective to the CFIUS reviews. While the United
States remains generally very much open to foreign investment--and the
Exon-Florio authority to prohibit an investment has been used quite
rarely--in this period of rapid globalization, the existence of this
authority and the interagency review process are important.
Summary
In sum, the DPA provides authority for a variety of programs at the
Department of Commerce of substantial importance to our Nation's
security. Through DPAS, it facilitates the timely and effective
provision of necessary supplies to our military, to our close allies,
and increasingly, to meet Homeland Security requirements. The DPA also
facilitates valuable assessments of the impact of offsets in defense
trade and the health of key sectors of the defense industrial base.
Finally, it affords the U.S. Government the opportunity to assess--and
if necessary, take steps to limit foreign investments in U.S. companies
that could threaten U.S. national security.
Most provisions of the Defense Production Act are not permanent law
and must be renewed by Congress. For all these reasons, the Department
of Commerce fully supports extending the Defense Production Act for a
5-year period.
Thank you.
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PREPARED STATEMENT OF R. DAVID PAULISON
Director, Preparedness Division
Emergency Preparedness and Response Directorate
U.S. Department of Homeland Security
June 5, 2003
Good afternoon, Mr. Chairman and Members of the Committee, I am
David Paulison, Director of the Preparedness Division within the
Emergency Preparedness and Response Directorate of the Department of
Homeland Security (DHS). On behalf of Secretary Ridge, I appreciate the
opportunity to appear before you today to support the 5-year
reauthorization of the nonpermanent provisions of the Defense
Production Act (DPA).
The DPA is the President's primary authority to ensure the timely
availability of industrial resources for both military and civil
emergency preparedness and response. Expiration of these provisions
would severely undermine our Nation's ability to prevent, as well as to
respond to a disaster that is truly catastrophic--whether natural or
man-made.
The Department of Homeland Security combines many Government
functions that focus on protecting our Nation's borders and airports,
among other activities, and ensuring that we are prepared for and able
to respond to terrorist attacks and natural disasters. The Defense
Production Act authorities are critical to the Department's strategic
objectives to prevent terrorist attacks within the United States,
reduce America's vulnerability to terrorism, minimize the damage and
hasten the recovery from attacks that may occur.
Since September 11, we have seen the effectiveness of the Defense
Production Act in reducing the Nation's vulnerability to terrorism.
Specifically, the Defense Priorities and Allocation System authorized
under Title I of the DPA was used by the Transportation Security
Administration to expedite the production of explosive detection and
communication systems for our major airports. Without the use of these
priority orders, the manufacturers could not have delivered these
systems in a timely fashion. In addition, we expect to request
assignment of a DPA priority rating from the Department of Commerce to
support the Bureau of Customs and Border Protection within our
Department to obtain equipment that will enable us to track
containerized shipping arriving at our borders.
The Defense Production Act can also be used for preparedness,
response, and recovery activities in catastrophic disasters such as an
earthquake, a hurricane, or an incident involving a weapon of mass
destruction. This use is being integrated into planning for such
catastrophic occurrences.
DHS understands the need to have a priorities and allocations
system ready to ensure the timely availability of resources to meet
civil emergency requirements. Such a priorities and allocations system
will enable Federal, State, and local governments to acquire items
needed urgently to meet the needs of the affected population when such
items are not readily available in the marketplace. Without this system
our response and recovery operations could be severely hindered.
Other DPA authorities are important to the DHS mission. These
authorities
include the use of:
Financial incentives, subject to Presidential designation, to
establish industrial
capacity for products and services, such as vaccines to protect
against biological agents (under Title III);
Industry agreements to enhance preparedness and response
capabilities--for example, critical infrastructure protection
(under Section 708); and
An executive reserve to provide expertise from the private
sector during an emergency (under Section 710).
Within the new Department, DPA authorities reside with the DHS
Under Secretary for Emergency Preparedness and Response. DHS is
preparing departmental guidance on the use of these DPA authorities.
Specifically, DHS is implementing its DPA responsibilities by:
Serving as an advisor to the National Security Council (NSC)
on DPA authorities and national security resource preparedness
issues and reporting on activities under Executive Order 12919;
Providing central interagency coordination of the plans and
programs incident to the authorities under Executive Order 12919;
Developing guidance and procedures under the DPA for approval
by the NSC;
Resolving issues on resource priorities and allocation;
Making determinations on use of priorities and allocations for
essential civilian needs supporting the national defense; and
Coordinating the National Defense Executive Reserve (NDER)
program activities of departments and agencies in establishing NDER
units and providing guidance for recruitment, training, and
activation.
The DHS National Defense Executive Reserve (NDER) program is being
evaluated in terms of what private sector expertise can be mobilized
when needed to respond to today's threats. NDERs are valuable assets to
several Federal departments and agencies. The reauthorization of DPA is
required to continue this program.
DHS also recognizes the importance of Section 708 of the Defense
Production Act that provides authority for the creation of voluntary
industry agreements to support preparedness for national defense and
civil emergencies. This authority allows industry and the Federal
Government to work together to solve problems that inhibit the
availability of resources in an emergency. The Homeland Security Act
authorized the use of this provision for critical infrastructure
protection planning and information sharing. Section 708 provides narrow antitrust and limited liability protections for infrastructure sectors and industry that are asked to prepare preparedness plans. DHS will be reviewing the guidelines for this program and determining if they need to be revised or streamlined to meet the current environment.
We will work with the National Security Council, the Homeland
Security Council, and the appropriate Federal departments and agencies
to ensure that DHS issues proper guidance and procedures for the
implementation of these DPA authorities. We view DHS responsibilities
under the DPA seriously and recognize the potential of the Act to
support the efforts of other departments and agencies to prevent,
prepare for, respond to, and recover from potential terrorist incidents
and other emergencies.
In summary, the Department of Homeland Security is committed to
fulfilling its responsibilities under the DPA and recognizes the Act's
potential to enhance significantly the Nation's ability to respond to a
homeland security threat.
Thank you for the opportunity to appear today. I would be pleased
to answer any questions that you may have.
PREPARED STATEMENT OF DENISE SWINK
Acting Director, Office of Energy Assurance
U.S. Department of Energy
June 5, 2003
I am Denise Swink, Acting Director of the Office of Energy
Assurance at the U.S. Department of Energy. I am pleased to appear
before the Committee in response to its request for testimony by the
Department on the reauthorization of the Defense Production Act of
1950. The Committee's invitation letter requests the Department to
address, in particular, the role of the Department of Energy in
responding to crises in which Defense Production Act authorities are
required.
The DOE Office of Energy Assurance is responsible for protecting
critical infrastructures and key assets in the energy sector. Our
office leads the effort to ensure a secure, reliable flow of energy to
America's homes, businesses, industries, and critical infrastructures
(e.g., telecommunications, transportation, water supply, banking and
finance, manufacturing, education and public health systems). In
carrying out our mission, we work closely with the Department of
Homeland Security and in partnership with industry and State and local
governments. The Department's energy assurance program is conducted in
direct support of the President's National Strategy for Homeland
Security and the President's National Energy Policy.
A comprehensive discussion of the authorities contained in the DPA
and of how they might be used in responding to energy emergency
situations is contained in a 1982 Department of Justice memorandum of
law for the President which was submitted to the Congress in compliance
with the Energy Emergency Preparedness Act of 1982 (Public Law 97-229).
The memorandum's discussion of the DPA remains valid today. As the
Justice Department's memorandum makes clear, whether the Defense
Production Act authorities placed in the President might be useful in
responding to energy crises would be highly fact-dependent. However, we
do believe that a number of the Act's provisions could be potentially
useful in addressing energy needs, and I will address their past use by
the Department and ways in which the authorities could be useful in the
future.
Title I of the Defense Production Act contains two separate
``priority contracting'' provisions authorizing the President to
require performance on a priority basis of contracts or orders in
certain circumstances. The Secretary of Energy has been delegated
authority by the President to exercise the Title I priority contracting
authorities, in Executive Order Numbers 11790 and 12919. The first
provision, Section 101(a) of Title I, deals with priority contracting
to ``promote the national defense.'' Under Section 101(a), the
Secretary may require performance on a priority basis of contracts for
energy supplies that the Secretary deems ``necessary or appropriate to
promote the national defense.'' This authority could be used, for
example, to require the acceptance of and priority performance under
contracts relating to production, delivery, or refining of petroleum
products or other forms of energy, including natural gas, to meet the
energy needs of the Department of Defense and its contractors. It also
could be used to facilitate transportation of energy supplies to meet
national defense needs, for example, by requiring pipelines, marine
terminals, and other facilities to perform energy transport contracts
necessary to meet the priority needs of the Defense Department and its
contractors.
In determining what the national defense requires, it is clear the
Secretary may consider the potential impact of shortages of energy
supplies. In the Energy Security Act of 1980, Congress specifically
designated energy as a ``strategic and critical material'' within the
meaning of the Defense Production Act and also added language to the
DPA Declaration of Policy that establishes a link between assuring the
availability of energy supplies and maintaining defense preparedness.
The Defense Production Act's Declaration of Policy states:
[I]n order to ensure national defense preparedness, which is
essential to national security, it is necessary and appropriate
to assure the availability of domestic energy supplies for
national defense needs.
The second priority contracting provision in Title I of the Defense
Production Act, Section 101(c), is linked to facilitating projects that
maximize domestic energy supplies rather than to meeting the needs of
the national defense. Section 101(c) authorizes the Department of
Energy to require priority performance of contracts for goods and
services for projects which would maximize domestic energy supplies, if
the Secretaries of Energy and Commerce make certain findings, including
that the good or service is scarce, critical, and essential to
maximizing domestic energy supplies. If world circumstances were such
that the President directed a drawdown of the Strategic Petroleum
Reserve, and coincident with that direction from the President there
was a significant breakdown in the Strategic Petroleum Reserve
facilities, that would be the type of circumstance where, if it were
urgent to replace scarce and backlogged specialized pumps and other
apparatus, the Department could rely upon Section 101(c) to bring the
facility back online in an operational sense as promptly as possible.
Absent the Defense Production Act, it would be exceedingly difficult to persuade vendors to put our order at the head of the line for fear of third-party contract liability that they otherwise might expose themselves to,
even if they were otherwise willing to cooperate with the Department in the interests of the country.
Section 101(c) might be used alone, or in tandem with Section
101(a), to assist in restoring critical energy infrastructures
following widespread terrorist attacks or a natural disaster, for
example, to assist electric utilities, oil companies, or other energy
companies in obtaining equipment needed to repair damaged facilities,
or to provide fuel oil or natural gas to electric utilities to ensure
continued supply of electricity.
Section 101(c) was used in the late 1970's and again in the 1980's
and early 1990's to facilitate petroleum production development of the
Alaskan North Slope. The Department also relied on Section 101(c), as
well as 101(a), as a complement to the emergency provisions of the
Natural Gas Policy Act, in its January 2001 orders, directed by former
President Clinton, to Pacific Gas and Electric Company and a number of
natural gas suppliers to assure the continued supply of natural gas
necessary for continued availability of electric service in the central
and northern regions of California.
A third Defense Production Act provision which has been used in the
past to address energy supply problems is Section 708, which provides a
limited antitrust defense and breach of contract protection for industry participating in voluntary agreements and plans of action ``to help provide for the defense of the United States through the development of preparedness programs and the expansion of productive capacity and supply beyond levels needed to meet essential civilian demand in the United States.'' This provision had its roots in our World War II experience and was an important
vehicle for gaining the help of the oil industry during and after the
Korean War. For example, in 1951-52, a voluntary agreement under
Section 708 was used to protect a group of oil companies which agreed
to provide heating oil to redress a winter shortfall in New England.
Later, Section 708 was used for the first voluntary agreement of U.S.
oil companies which had agreed to participate in the International
Energy Agency's standby emergency preparedness programs. Subsequently,
in 1975, Congress enacted very similar voluntary agreement authority in
Section 251 of the Energy Policy and Conservation Act as the vehicle
for U.S. oil company participation in the energy emergency preparedness
activities of the International Energy Agency.
In the future, in the event of widespread damage to energy
production or delivery systems caused by acts of terrorism or natural
disasters, the DPA's Section 708 voluntary agreement authority might be
used in establishing a voluntary agreement of energy service companies
to coordinate the planning of the restoration of the damaged
facilities.
To facilitate communications among stakeholders and to broaden our
partnerships with the private sector, we have established Information
Sharing and Analysis Centers (ISAC's) among energy industry
stakeholders to improve infrastructure security. We expect to confer
with the ISAC's on all of the authorities available to the President
and to the Department that might be useful in protecting and, if
necessary, restoring critical energy infrastructures.
The Secretary believes that the authorities the DPA confers on the
President are important tools that should remain available to the
President unimpaired to use in appropriate circumstances. Accordingly,
the Department joins the rest of the Administration in supporting a 5-
year extension of the Defense Production Act.
This concludes my prepared statement. I will be pleased to respond
to any questions the Committee may have.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM RONALD M. SEGA
Q.1. What steps can be taken to ensure the retention of
domestic semiconductor chip manufacturing capabilities, as well
as research and design capabilities?
A.1. The Department is continuously assessing the health of the
domestic defense industrial base to ensure that it can meet
national security goals such as maintaining the technological
superiority of defense systems and providing a more timely
response to crisis needs. Should a shortfall in production
capability for semiconductors or other materials essential for
national defense be identified, the Defense Production Act
(DPA) provides an array of authorities that could be employed.
The Department continues to have a strong research and
engineering semiconductor program. The current year's
investment in semiconductors ensures that the Department's
current and future military systems will have technological
superiority.
Q.2. Is this an issue that the department feels could or should
be addressed within the context of the DPA?
A.2. DPA authorities could be used to address a shortfall in
semiconductor manufacturing capability. For example, the
Department is currently executing a DPA Title III project to
modernize and maintain the production capabilities of the
remaining domestic producers of Radiation hardened
microelectronics to enable them to meet the requirements of
defense space and missile systems. Other Title III projects
(current and previous) supporting the domestic semiconductor
industry include: Radiation hardened microprocessor for space,
radiation hardened cryogenic temperature microelectronics,
silicon carbide substrates, semi-insulating gallium arsenide
wafers, high purity float zone silicon, and semi-insulating
indium phosphide substrates.
RESPONSE TO ORAL QUESTION OF SENATOR SARBANES
FROM SUZANNE D. PATRICK
Q.1. During the hearing the following question was asked: We
last reauthorized the DPA in 2001. In fact, we had held an
oversight hearing ahead of the Administration's submission of
authorization, which came from the Federal Emergency Management
Agency and was transmitted to this Committee, the
reauthorizaton request.
Now, this year, the Administration's transmission to the
Congress requesting a reauthorization came not from FEMA nor to
the Committee, but came from the Defense Department as part of
the request for the national defense authorization bill and
went to the Vice President in his capacity as President of the
Senate.
That is a complete departure from past precedent with
respect to the DPA, and I was interested to know why that
occurred.
A.1. The information follows:
Executive Order 12919 designates FEMA as the lead federal
agency responsible for providing central coordination and
support of a variety of Defense Production Act (DPA) matters to
include plans and programs incident to the authorities under
the order; and developing guidance and procedures under the DPA
that are approved by the National Security Council (NSC). As
such, FEMA has the primary responsibility for leading an
interagency effort to develop a legislative proposal for
submission to Congress.
During the fourth quarter of 2002, Department of Defense
representatives made a number of inquiries to FEMA and NSC
staff regarding the need to initiate an interagency effort to
develop a legislative proposal to reauthorize the Defense
Production Act prior to its expiration on September 30, 2003.
However, little action was taken. By early January 2003, with
conflict in Iraq imminent and the need to meet Congressional
schedules for timely consideration of legislation, it was
imperative that reauthorization legislation be submitted at the
earliest possible opportunity. Consequently, the Department of
Defense, with the knowledge and acquiescence of the NSC and
FEMA, drafted legislation to reauthorize the Defense Production
Act. The legislative proposal was included in the DOD National
Defense Authorization bill that was forwarded to Congress on
March 3, 2003. The Authorization bill was deemed to be the most
practical way of submitting the legislation to Congress. This
was done with the full expectation that the proposed
legislation would be provided to the Senate Committee on
Banking, Housing, and Urban Affairs and the House Committee on
Financial Services for consideration. In the future, we fully
expect the Department of Homeland Security to take the lead in
efforts regarding the Defense Production Act.
We apologize for any confusion this action may have
engendered. It was never the intent of the Department of
Defense to circumvent the jurisdiction of the Senate Committee
on Banking, Housing, and Urban Affairs and the House Committee
on Financial Services over the Defense Production Act.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
FROM RONALD M. SEGA
Q.1. A number of experts have recently raised concern over the
future of the domestic semiconductor microelectronics industry
and its ability to compete with China and other nations. As you
know, microelectronics are at the heart of almost all of our
advanced weapon systems, so, I am concerned that without some
action the United States will lose the ability to supply the
electronics it needs for our own defense systems. In your
testimony, I know you highlight some past work that has
supported the semiconductor industry. What are your future
plans to make use of the authorities of the Defense Production
Act to preserve this critical national capability?
A.1. The authorities of Title III of the DPA provide an
extremely valuable tool by which the Department can apply
financial incentives to either maintain an essential domestic
defense industrial capability or encourage private industry to
undertake the creation of new domestic sources of supply.
Whenever an industrial base shortfall jeopardizes our defense
capabilities, whether it is microelectronics or other
technology items, DPA authority can be used to resolve the
shortfall. One semiconductor related project being considered
for Title III assistance is a next generation radiation
hardened microprocessor.
Q.2. I know that the Defense Production Act program tries to
address technology areas in which U.S. industry lags behind
foreign producers. How exactly do you measure how U.S. industry
stands relative to foreign industry when it comes to the
development and manufacture of defense technologies?
A.2. The Department relies on existing industrial base,
technical, and market studies/assessments to gain insight into
specific technical areas or industries and to determine whether
or not the
criteria set forth in the DPA are fully satisfied. Sources of
this information often include: Industrial base assessments
prepared by DOD; specialized technical assessments authored by
the military services; and commercially available market and
technology studies. The principal focus of any assessments or
investigations undertaken directly by the DPA program is to
better understand the composition and nature of competition
within a specific industry. Emphasis is placed on identifying
the business and technical factors that contribute to
diminishing production capability, lack of investment, and
financial weakness that often foretell the need for application
of the DPA authorities. To the maximum extent feasible,
findings are used to formulate an acquisition strategy to
address and overcome these factors in order to strengthen the
production capabilities and economic viability of domestic
producers.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
FROM SUZANNE D. PATRICK
Q.1. I know that in our fiscal year 2004 bill, the Senate Armed
Services Committee has requested a report from DOD on plans to
address the future of domestic supplies of semiconductor
microelectronics needed for defense systems. I look forward to
seeing that report. I hope you will be involved in its
development and make sure that the DPA programs are highlighted
in DOD's plans?
A.1. Yes, my office has already been studying the semiconductor
industrial base. We are involved in a coordinated effort across
the Department to respond to the fiscal year 2004 Senate Armed
Services Committee language in addition to other Congressional
tasks addressing semiconductors. The Defense Production Act
(DPA) Title III program is already playing a critical role in
improving the radiation hardened segment of the semiconductor
industrial base. The Department will consider DPA for other
uses as our broader plans develop.
Q.2. I note that in the Senate Armed Services Committee, we
proposed that Dr. Sega establish a Global Research Watch
program to help him make assessments of foreign scientific
capabilities and help make investment decisions for DOD science
and technology. Do you think that a similar effort should be
made to address industrial base issues and assess foreign
manufacturing capabilities of defense systems?
A.2. The Department's ongoing process of assessing foreign
manufacturing capabilities generally is decentralized, being
performed at the individual program level. At that level, the
Department surveys the potential suppliers domestically and
internationally. A formal,
global assessment process would not be as responsive or as
timely to the requirements of programmatic decisions.
The competence of off-shore manufacturing is of interest,
but the truly important thing is that we continue to have
access, either through domestic manufacturers or through our
friends and allies, to the capabilities necessary to deliver
the world-class equipment to the warfighter that America
expects. To better focus our efforts, we are conducting a
series of studies across the Joint Warfighting Capabilities
Assessment architectures to catalog which operational
capabilities require national industrial leadership to maintain
an asymmetric operational advantage and to identify the key
industries critical to those capabilities. We then will make an
overarching assessment of the ability of domestic and foreign
industry to provide those capabilities for defense systems.
This assessment will allow us to bring our resources to bear to
sustain our industrial leadership or to gain it in these key
industries. As the industrial base then continues to evolve we
can update our assessments to put priority on efforts to
maintain national leadership on critical industries while
depending on the global marketplace for our other requirements.
The results of these studies will be carefully coordinated
within the Department, most particularly with Dr. Sega's staff,
to ensure maximum synergies among our collective efforts.
Q.3. Are you aware of any systems, subsystems, components, or
materials that the United States requires for current or future
defense needs that cannot currently be produced domestically?
A.3. The Department procures a wide range of products and
services to meet its national defense responsibilities.
Sometimes these products, subsystems, components, and materials
are procured from foreign sources. DOD generally does not
mandate supplier selections to its contractors. We expect our
contractors to select
reliable, capable suppliers consistent with obtaining best
value, encouraging effective competition, and meeting national
security
requirements. Our prime contractors and first and second tier
suppliers indicate they select foreign subcontractors for
specific items because those subcontractors offer the best
combination of price, performance, and delivery.
The plain fact is that DOD and its contractors have been
very conservative in using foreign sources. This reality is
born out in a ``Study on Impact of Foreign Sourcing of
Systems'' that we submitted to Congress in October 2001. The
study findings showed that less than 2 percent of the
subcontracted efforts went to foreign sources, that none of
these foreign sources represented a threat to national
security, and that the vast majority of the foreign sources
were located in NATO-member nations. The study identified only
six instances where domestic sources were not then available to
compete for items subcontracted to foreign suppliers. These
instances were associated with a single source. United States
sources are or could be available if needed without significant
additional cost, time, and risk.
We know that the U.S. defense industrial base does not have
the global monopoly on good ideas and technology innovation. In
fact, the smaller scale, the faster pace, and the relatively
lower cost of the individual warfighting elements of net-
centric systems will provide unique opportunities to allies
willing to focus ever-limited budgetary resources on ``niches''
that are the key to net-centric
solutions.
Q.4. I know that there are a number of DOD programs that
attempt to address the issue of maintaining the industrial base
necessary to support our national security requirements. Could
you quickly list those different activities? Also, could you
describe to us how these programs are coordinated within DOD
and with other Federal agencies? Who is the overall program
coordinator within DOD?
A.4. It is our view that the competitive pressure of the
marketplace is the best vehicle to shape and sustain an
industrial base that supports our national security
requirements. DOD takes action to intervene in that marketplace
only when necessary to develop and/or to preserve industrial
and technological capabilities essential to defense that the
marketplace, left unattended, would not. As the principal
customer, DOD research and development and acquisition plans,
budgets, evaluations, and decisions play a significant role in
shaping the defense industry.
The Under Secretary of Defense for Acquisition, Technology
& Logistics has the overarching responsibility to coordinate
such programs, working through the Military Departments, the
Defense
Advanced Research Projects Agency, and also DOD's Small and
Disadvantaged Business Utilization organization. Within this
overall framework, the DOD also employs several programs to
develop or improve defense-critical industrial and
technological capabilities,
including the authorities of Title III of the Defense
Production Act; and the Manufacturing Technology, Small
Business Innovative Research, and Technology Transfer programs.
One of our major areas of emphasis is to ensure that
barriers to enter the defense business do not discourage
innovative, smaller suppliers from offering creative solutions
to defense problems. To this end, we have established a
clearinghouse within the Office of the Director, Defense
Research and Engineering to help the nontraditional suppliers
navigate the defense enterprise; and we are developing search
engines to help such firms access available DOD
information.
Finally, we conduct assessments of selected segments of our
industrial base to determine if industrial and technological
capabilities are sufficient to meet current and projected
defense requirements. We summarize these assessments in our
annual industrial capabilities reports to Congress. This year,
as I noted in response to an earlier question, we also are
conducting studies to identify
industrial base needs in light of transformational warfare
requirements, highlighting the potential contribution of
nontraditional suppliers, both domestic and global.
Q.5. I understand that in the House Armed Services Committee's
bill, that we are about to begin conferencing, they established
a $100 million Defense Industrial Base Capabilities Fund that
would be used to address perceived shortfalls in our domestic
industrial base. Have you had a chance to review this
legislation?
A.5. Yes, I have had an opportunity to review the legislation.
Q.6. Can this provision be viewed as duplicative to the Defense
Production Act or do you think a fund like this would be a
valuable tool in addressing some of the industrial base issues
we are discussing today?
A.6.: The Defense Industrial Base Capabilities Fund established
by section 814 of title VIII, subtitle B of H.R. 1588, is
intended to develop capabilities for the production of critical
items available only from foreign contractors or from a limited
number of U.S. manufacturers. I believe the proposed fund would
duplicate many aspects of the current Defense Production Act
Title III program. Current Title III authorities give the
Department a powerful tool with which it can provide domestic
industry with a variety of financial incentives to either
maintain, modernize, or expand an essential domestic defense
industrial capability or encourage private industry to
undertake the creation of new domestic sources of supply for
advanced materials and technology items and accelerate the
deployment of new products and manufacturing process technology
into and across the U.S. industrial base. The Department has
used this program to facilitate the transition of state-of-the-
art materials and products from development to production, to
strengthen key domestic industrial sectors, and to reduce U.S.
dependency on foreign sources for materials and technologies
critical to national defense. I believe the House provision
would impose unnecessary
administrative and staff burdens on the Department without
providing any additional benefits.
Q.7. As we go into our conference, I hope that you can give us
your views and insights on this language so that we can amend
or perfect it so that it can address the industrial base
shortfalls that
may exist.
A.7. I would urge that this provision, and all of the other
provisions of Subtitle B of Title VIII of H.R. 1588, be
rescinded. The
provisions in this subtitle seem to be based on the inaccurate
presumption that the U.S. defense industrial base needs to be
revitalized and that U.S. defense systems are vulnerable due to
foreign dependencies. Collectively, I believe the provisions
likely would have a catastrophic impact on the Department's
ability to meet its national security responsibilities. DOD
weapons programs would have to be reexamined and restructured
to eliminate foreign content, thereby significantly increasing
costs and delaying fielding dates, degrading military
capabilities, reducing interoperability, and inviting trade
retaliation from allies. U.S. defense contractors would be
required to expend hundreds of millions of dollars to replace
non-U.S. machine tools. Burdensome and expensive reporting
requirements would be placed on tens of thousands of U.S.
contractors, subcontractors, and offerors to collect
proprietary information, the primary purpose of which would be
to establish a baseline to eliminate non-U.S. suppliers and
machine tools. These provisions also would have the unintended
consequence of discouraging U.S. suppliers from participating
in the defense business.
RESPONSE TO ORAL QUESTION OF SENATOR SHELBY
FROM DENISE SWINK
Q.1. During the hearing the following question was asked: Could
you now or for the record provide the Committee the Energy
Department's understanding of its role and responsibilities in
implementing the Defense Production Act and what criteria you
use at the Department of Energy in determining that a threat to
national defense has materialized warranting its intervention
in crises like that which affected California?
A.1. A comprehensive discussion of the authorities contained in
the Defense Production Act of 1950 (DPA) and of how they might
be used in responding to energy emergency situations is
contained in a 1982 Department of Justice memorandum of law for
the President which was submitted to the Congress in compliance
with the Energy Emergency Preparedness Act of 1982 (Public Law
97-229). The memorandum's discussion of the DPA remains valid
today. As the Justice Department's memorandum makes clear, the
question of when the authorities conferred on the President by
the DPA can be used in responding to energy crises is highly
fact-dependent.
Title I of the Defense Production Act contains two separate
and distinct ``priority contracting'' provisions authorizing
the President to require performance on a priority basis of
contracts or orders in certain circumstances. The first
authorizes action to ``promote the national defense.'' The
second authorizes action to ``maximize domestic energy
supplies'' as a general matter, not only when defense
activities are directly implicated. The Secretary of Energy has
been delegated authority by the President, through Executive
Order Numbers 11790 and 12919, to exercise the Title I priority
contracting authorities.
The first provision, section 101(a) of Title 1, deals with
priority contracting to ``promote the national defense.'' Under
section 101(a), the Secretary may require performance on a
priority basis of contracts for energy supplies that the
Secretary deems ``necessary or appropriate to promote the
national defense.'' This authority could be used, for example,
to require the acceptance of and priority performance under
contracts relating to production, delivery or refining of
petroleum products or other forms of energy, including natural
gas, to meet the energy needs of the Department of Defense and
its contractors. It also could be used to facilitate
transportation of energy supplies to meet national defense
needs, for example, by requiring pipelines, marine terminals,
and other facilities to perform energy transport contracts
necessary to meet the priority needs of the Defense Department
and its contractors.
In determining what the national defense requires, it is
clear the Secretary may consider the potential impact of energy
shortages. In the Energy Security Act of 1980, Congress
specifically designated energy as a ``strategic and critical
material'' within the meaning of the Defense Production Act and
also added language to the DPA Declaration of Policy that
establishes a link between assuring the availability of energy
supplies and maintaining defense preparedness. The Defense
Production Act's Declaration of Policy states:
[I]n order to ensure national defense preparedness,
which is essential to national security, it is
necessary and appropriate to assure the availability of
domestic energy supplies for national defense needs.
The second priority contracting provision in Title I of the
Defense Production Act, section 101(c), is linked to
facilitating projects that maximize domestic energy supplies.
Section 101(c) authorizes the Department of Energy to require
priority performance of contracts for goods and services for
projects which would maximize domestic energy supplies, if the
Secretaries of Energy and Commerce make certain findings,
including that the good or service is scarce and critical and
essential to maximizing domestic energy supplies. For example,
if the President directed a drawdown of the Strategic Petroleum
Reserve and if there was a significant breakdown in the
Strategic Petroleum Reserve facilities, that could be the type
of circumstance where the Department might have to rely upon
section 101(c) to obtain equipment needed to bring the facility
back online as promptly as possible. Absent the Defense
Production Act, it might be impossible to persuade vendors to
put our order at the head of the line for fear of third-party
contract liability, even if they were otherwise willing to
cooperate with the Department in the interests of the country.
Section 101(c) also might be used alone, or in tandem with
section 101(a), to assist in restoring critical energy
infrastructures
following widespread terrorist attacks or a natural disaster,
for example, to assist electric utilities, oil companies or
other energy companies in obtaining equipment needed to repair
damaged facilities, or to provide fuel oil or natural gas to
electric utilities to ensure continued supply of electricity.
Section 101(c) was used in the late 1970's and again in the
1980's and early 1990's to facilitate petroleum production
development of the Alaskan North Slope.
In responding to the actual and threatened interruptions of
natural gas supplies in California in January 2001, the
Department relied on both section 101(a) and 101(c), as a
complement to the emergency provisions of the Natural Gas
Policy Act, in its orders to Pacific Gas and Electric Company
and a number of natural gas suppliers to assure the continued
supply of natural gas necessary for continued availability of
electric service in the central and northern regions of
California. Defense considerations were an important factor in
the invocation of the DPA 101(a) authority. PG&E's customer
base in northern and central California includes a number of
defense (including ``space,'' as the term ``defense'' is
defined in the Defense Production Act) installations and
defense contractors that use natural gas and electricity and
that clearly would be adversely impacted by interruptions of
natural gas service. Continuity of supply to these facilities
was threatened in the same fashion as other industrial natural
gas consumers in PG&E's service territory. In short, it was
clear that a host of serious problems likely would have
resulted if significant portions of California were to lose
their natural gas supply and that potential harm to the
national defense was an important part of this myriad of
concerns.
In determining to rely on section 101(c), as well as
101(a), the Department recognized that in the situation
existing in California in mid-January 2001, natural gas
supplies would have become acutely scarce had the withholding
by PG&E's suppliers continued and expanded to more suppliers
than those that already had terminated deliveries. Moreover,
continuity of natural supply was critical and essential in
PG&E's service area to electric energy generation, petroleum
refining, and maintaining energy facilities. These factors
seemed directly to bear on the terms of section 101 (c) of the
Defense Production Act relating to continuity of energy
production and maximizing domestic energy supplies.
RESPONSE TO ORAL QUESTION OF SENATOR ALLARD
FROM DENISE SWINK
Q.1. During the hearing the following question was asked: If a
shortage of electricity suddenly develops for one of our major
production manufacturers in California--and California has a
number of them, and something were to happen to the lines,
preventing the rebuilding of those lines or perhaps building an
alternative line system, do you feel that you have the
authority to override existing law, for example, the Endangered
Species Act? Would the ESA or other laws prevent you from
reconstructing the line? I think you could override existing
law if it were a local community concern, but for something
that would be a national law like the Endangered Species Act,
could you override that to reconstruct lines if our national
security were at stake?
A.1. The Defense Production Act does not contain any authority
which might be used to override the requirements of laws such
as the Endangered Species Act, which you noted possibly could
impede rapid restoration of damaged critical infrastructures.
The Endangered Species Act does include a process, in Section 7
of the Act, for seeking an exemption from the Act's
requirements regarding threatened or endangered species.
However, the exemption process is lengthy, and it does not
appear to be useful as a basis for an expedited override of the
Act's requirements.
PREPARED STATEMENT OF SENATOR JOSEPH I. LIEBERMAN
Mr. Chairman, I want to compliment you and the Banking, Housing and
Urban Affairs Committee for holding a hearing on this very important
issue. I share your concerns about the loss to the U.S. economy of most
of our high-end semiconductor chip manufacturing sector, the threat of
the subsequent loss of the semiconductor research and design sectors,
and the resulting serious national security implications. And I would
like to add a few thoughts on the subject to your discussion.
The composition of the global semiconductor industry has changed
dramatically in recent years. East Asian countries are leveraging these
changing market forces through their national trade and industrial
policies to drive a migration of semiconductor manufacturing to that
region, particularly China, through a large array of direct and
indirect subsidies to their domestic semiconductor industry. If this
accelerating shift in manufacturing overseas continues, the U.S. will
lose the ability to reliably obtain high-end semiconductor integrated
circuits from trusted sources, at a time when these advanced processing
components are becoming a crucial defense technology advantage to the
U.S. Experts in the military and intelligence sectors, have made clear
that relying on semiconductor integrated circuits fabricated outside
the United States (for example in China, Taiwan, and Singapore) is not
an acceptable national security option. The economic impact in the
United States of the loss of manufacturing, research, and design has
equally serious implications.
I would like to direct the Committee's attention to the White Paper
that I am asking be included in the Senate Banking Committee Hearing
Record, which outlines the fact that this off-shore migration of high-
end semiconductor chip manufacturing is a result of concerted foreign
government action, through an effective combination of government trade
and industrial policies which have taken advantage of opportunities
resulting from market forces and changes in the semiconductor industry.
This White Paper lists a number of possible actions the defense and
intelligence communities should consider to prevent this serious loss
of U.S. semiconductor manufacturing and design capability. I have also
requested that the Department of Defense, the National Security Agency,
and the National Reconnaissance Office submit a report and plan of
action to respond to this impending national security threat. I have
asked that this report provide an analysis of the semiconductor
manufacturing issues that relate to defense and national security, as
well as an analysis of the
potential solutions that are discussed in the White Paper. I hope that
the report will detail the steps that will be taken to counteract this
loss of critical components for U.S. defense needs, as well as a
timetable for the implementation of such steps. I hope that the Banking
Committee could consider similar steps. I note that the Armed Services
Committee Report on the bill we passed yesterday requests similar
information.
I hope that we can act promptly to avoid a potential national
security crisis in terms of reliable access to cutting edge technology
necessary to the critical defense needs of our country. The loss goes
beyond economics and security. What is at stake here is our ability to
be preeminent in the world of ideas on which the semiconductor industry
is based. A prompt, concerted effort by the defense and intelligence
community in cooperation with industry can reverse this trend of off-
shore migration of manufacturing, research, and design that
is now under way and that will
become essentially irreversible if no action is taken in the next few
months.