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EXCLUSIVE US Law Would Prevent Defense Contractors From Using Chinese Rare Earths

EXCLUSIVE US Law Would Prevent Defense Contractors From Using Chinese Rare Earths

Jan 14 (Reuters) – A bipartisan piece of legislation to be introduced Friday in the US Senate would force defense contractors to stop buying rare earths from China by 2026 and use the Pentagon to stock a permanent supply of to lay the strategic minerals.

The bill, sponsored by Senators Tom Cotton, an Arkansas Republican, and Mark Kelly, an Arizona Democrat, is the latest in a string of US legislation seeking to thwart China’s near control of the industry.

It essentially uses the Pentagon’s purchase billions of dollars worth of fighter jets, missiles and other weapons as leverage to force contractors to stop relying on China and, by extension, support the resurgence of rare earth production in the US.

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Rare earths are a group of 17 metals that, after processing, are used to make magnets found in electric vehicles, weapons and electronics. While the United States created the industry in World War II and American military scientists developed the most widely used type of rare-earth magnet, China has grown slowly to master across the industry over the past 30 years.

The United States only has a rare earth mine and has no ability to process rare earth minerals.

“Ending US dependence on China for the mining and processing of rare earths is critical to building the US defense and technology sectors,” Cotton told Reuters.

The senator, who sits on the Senate Armed Forces and Intelligence Committees, described China’s evolution as the global leader in rare earths as “just a policy choice made by the United States,” adding that he hoped that a new policy would loosen Beijing’s grip.

Known as the Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022, the bill would codify and make permanent Pentagon legislation. ongoing stocks of the materials. China temporarily blocked rare earth exports to Japan in 2010 and has vague threats it could do the same with the United States.

However, to build that reserve, the Pentagon is buying some of the supply from China, a paradox that Senate staffers hope will diminish over time.

The production process of rare earths can be very polluting, which is one of the reasons why it did not become popular in the United States. Ongoing research is trying to make the process cleaner.

Cotton said he has spoken to several US executives about the bill, but declined to say whether he had spoken to President Joe Biden or the White House.

“This is one area Congress will lead on as many members have been concerned about this issue regardless of party,” he said.

ENCOURAGE DOMESTIC OUTPUT

The bill, which sponsors expect to be included in Pentagon funding legislation later this year, does not provide direct support for the budding US rare earth sector.

Instead, the Pentagon is requiring contractors to stop using Chinese rare earths within four years, allowing exemptions only in rare situations. Defense contractors should immediately say where they are getting the minerals from.

Those requirements “should encourage more domestic (rare earths) development in our country,” Cotton said.

The Pentagon has given in the past two years grants to companies seeking to resume rare earth processing and magnet production in the US, including MP Materials Corp. (MPN), Lynas Rare Earth Ltd from Australia (LYC.AX), TDA Magnetics Inc and Urban Mining Co.

Kelly, a former astronaut and member of the Senate Armed Forces and Energy Committees, said the bill should “strengthen America’s position as a world leader in technology by reducing our country’s reliance on opponents like China for rare earth elements.”

The bill only applies to weapons, not other equipment purchased by the US military.

In addition, the US trade representative should investigate whether China is disrupting the rare earth market and recommend whether trade sanctions are needed.

When asked whether such a move could be viewed as hostile by Beijing, Cotton said, “I don’t think the answer to Chinese aggression or Chinese threats is to keep subjecting ourselves to Chinese threats.”

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Reporting by Ernest Scheyder; adaptation by Amran Abocar and Richard Pullin

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