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Unique-U.S. Draft legislation would forestall protection contractors from utilizing Chinese language uncommon earths

©Reuters. FILE PHOTO: Workers transport rare earth element earth for export to a port in Lianyungang, Jiangsu province, China October 31, 2010. Picture taken October 31, 2010. REUTERS/Stringer

By Ernest Scheyder

(Reuters) – A bipartisan law introduced in the US Senate on Friday would force defense contractors to stop buying rare earth elements from China by 2026 and use the Pentagon to establish a permanent stockpile of strategic minerals.

The bill, sponsored by Senators Tom Cotton, an Arkansas Republican, and Mark Kelly, an Arizona Democrat, is the latest in a series of US legislation aimed at thwarting China's near-control over the sector .

It essentially uses the Pentagon's purchases of billions of dollars worth of fighter jets, missiles and other weapons as a bargaining chip to require contractors to stop relying on China and, more broadly, to revive US production of rare ones support earth.

Rare earths are a group of 17 metals that, after being processed, are used to make magnets found in electric vehicles, weapons, and electronics. While the United States founded the industry in World War II and US military scientists developed the most widely used type of rare earth magnet, China has slowly grown to control the entire sector over the past 30 years.

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

"Ending America's dependence on China for rare earth extraction and processing is critical to building the US defense and technology sector," Cotton told Reuters.

The senator, who sits on the Senate Armed Services and Intelligence Committees, described China's emergence as the global leader in rare earths as "simply a policy decision by the United States," adding he hoped a new policy would loosen Beijing's grip.

The bill, known as the Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022, would codify the Pentagon's ongoing stockpiling of the materials and make them permanent. China temporarily blocked rare earth exports to Japan in 2010 and has vaguely threatened it could do the same to the United States.

To build this reserve, however, the Pentagon is partially buying supplies from China, a paradox that Senate staffers hope will lessen over time.

The rare earth production process can be very polluting, which is one of the reasons it became unpopular in the United States. Ongoing research is trying to make the process cleaner.

Cotton said he has spoken to various US law enforcement agencies about the bill, but declined to say whether he spoke to President Joe Biden or the White House.

"This is an area where Congress will lead because many members, regardless of party, have been concerned about this issue," he said.

PROMOTE DOMESTIC PRODUCTION

Most members of the burgeoning US rare earth sector hailed the bill, although some concerned defense contractors may continue to ask for waivers on Chinese rare earth purchases after 2026.

The Aerospace Industries Association, a trade group for Northrop Grumman Corp (NYSE:), Lockheed Martin Corp (NYSE:) and other US aerospace and defense companies declined to comment on the bill.

"Well-placed policies like these bring us closer to moving this important supply chain offshore," said Marty Weems, North American President of Australia-based American Rare Earths Ltd, which is developing three rare earth projects in the United States.

MP Materials Corp, which operates the only US rare earth mine and relies on Chinese processors, said it appreciates "the ongoing efforts by the Department of Defense and the broader US government to secure the domestic rare earth supply chain and the promote free and fair competition”.

The bill, which sponsors expect could be included in Pentagon funding legislation later this year, offers no direct support for US rare earth miners or processors.

Instead, it requires Pentagon contractors to stop using Chinese rare earths within four years, allowing exceptions only in rare situations. Defense companies would have to immediately indicate where they are getting the minerals from.

These requirements "should encourage native (rare earth) development in our country," Cotton said.

The Pentagon has over the past two years given grants to companies trying to restart U.S. rare earth processing and magnet production, including MP Materials, Australia's Lynas Rare Earth Ltd, TDA Magnetics Inc and Urban Mining Co.

Kelly, a former astronaut and a member of the Senate Armed Services and Energy Committee, said the bill seeks "to strengthen America's position as a global technology leader by reducing our country's reliance on adversaries like China for rare earth elements."

The law only applies to guns, not other equipment the US military buys.

In addition, the US trade representative would need to investigate whether China is distorting the rare earths market and recommend whether trade sanctions are needed.

When asked if such a move could be viewed as antagonistic by Beijing, Cotton said, "I don't think the answer to Chinese aggression or Chinese threats is to keep exposing us to Chinese threats."

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