On December 22, 2023, President Biden signed into law the National Defense Authorization Act (“NDAA”) for Fiscal Year 2024 (P.L. 118-31). A must-pass piece of legislation that funds Department of Defense (“DoD”) operations on an annual basis, the NDAA is a frequent vehicle for trade-related provisions and legislative changes affecting DoD acquisition policies with direct implications for government contractors. The measure includes a number of provisions relating to US export controls, sanctions, and supply chain issues, including matters regarding the AUKUS partnership, new requirements addressing corruption in foreign governments, and new restrictions impacting government contractors. The NDAA also incorporates the Combatting Global Corruption Act 2023, the Uyghur Genocide Intelligence Review Act, and the American Security Drone Act of 2023.
Below we discuss the key highlights of the newly enacted legislation.
Export Control Provisions
- Matters Relating to the AUKUS Partnership
Sections 1321-1354 enable key pillars of AUKUS, a trilateral security partnership for the Indo-Pacific region between Australia, the United Kingdom, and the United States that builds on longstanding and ongoing bilateral ties to strengthen the ability of each government to support security and defense interests. Key provisions include:
- Requiring the designation of an AUKUS Senior Advisor at the State Department and a Senior Official at DoD to elevate AUKUS engagement. (Sections 1331-1332)
- Streamlining and authorizing priority status for Australia and the United Kingdom within the foreign military sales (“FMS”) process, including identification of AUKUS-related technologies for advanced clearance to speed up the FMS process. (Sections 1341-1342)
- Facilitating exemption to US export controls for Australia and the United Kingdom if the President certifies that their export control regimes are comparable to that of the United States. (Section 1343)
- Mandating that the Secretary of State initiate a rulemaking to establish an expedited decision-making process for applications to export between and among Australia, the United Kingdom, and Canada defense articles and defense services that are not covered by an exemption under the International Traffic in Arms Regulations. (Section 1344)
- Amending Arms Export Control Act Section 38(f)(3) to waive the congressional notice requirements for establishing a country exemption for Australia or the United Kingdom, and requiring that the State Department carry out reviews of the US Munitions List at least every three years. (Section 1345)
- Authorizing the transfer of up to three Virginia-class submarines to Australia. (Section 1352)
- Allowing for joint training of Australian and UK shipyard workers to boost repair capability in Australia, which will provide increased readiness for US submarines, and authorizing the creation of a fund that will allow Australia to give over $3 billion to the US to enhance the submarine industrial base. (Section 1353)
Sanctions-Related Provisions
- Combatting Global Corruption Act of 2023
Sections 5401-5406 incorporate the Combatting Global Corruption Act 2023, which would require the State Department to address corruption in foreign governments. Key provisions include:
- Requiring the State Department to publish a public list of foreign countries where the government is sustaining or making good progress on anti-corruption efforts, while also requiring the Department to provide Congress with a classified list of countries where the government is making limited or no effort to comply with minimum anti-corruption standards. The lists would be required to be updated each year. (Section 5403)
- Establishing that a country would meet the minimum standards for eliminating corruption if it: (i) has implemented laws and established policies, structures, and practices that prohibit corruption; (ii) enforces anti-corruption laws through a fair judicial process; (iii) prescribes punishment for significant corruption that is commensurate with the punishment prescribed for serious crimes; and (iv) is making serious and sustained efforts to address corruption, including through prevention measures, investigations and prosecutions, and other actions. (Section 5404)
- Establishing that in identified countries where the government is making limited or no effort to address corruption, the State Department must evaluate whether there are individuals engaged in significant corruption who would be subject to sanctions under the Global Magnitsky Human Rights Accountability Act (which authorizes the President to impose economic sanctions and deny entry into the United States to any foreign person identified as engaging in corruption or human rights abuse). The State Department would be required to report to Congress on all foreign persons sanctioned under this provision. These requirements would expire after five years. (Section 5405)
- Requiring the State Department, for each country making limited or no effort to address corruption, to designate an official at the US diplomatic post to serve as a point of contact to coordinate efforts between the Department and other federal agencies to promote good governance and enhance the country’s ability to address corruption. (Section 5406)
- Global Cooperative Framework to End Human Rights Abuses in Sourcing Critical Minerals
Section 5411 would require the State Department to convene a meeting of foreign leaders to establish a multilateral framework to end human rights abuses, including the use of forced labor and child labor, related to the mining and sourcing of critical minerals.
- Ending China’s Developing Nation Status
Section 5413 would require the US government to pursue ending China’s developing nation status in international forums where both the United States and China are members, and to oppose labeling China as a developing nation in current and future treaty negotiations.
- Uyghur Genocide Intelligence Review Act
Section 7408 incorporates the Uyghur Genocide Intelligence Review Act, which would require the Director of National Intelligence within 180 days of enactment to coordinate with relevant heads of the intelligence community and submit a report to congressional intelligence committees.
Defense Industrial Base Supply Chain Restrictions
- Prohibition on Certain Batteries
Section 154 would prohibit DoD from purchasing battery technology produced by certain Chinese companies, effective October 1, 2027.
- Prohibition on Required Disclosure by Department of Defense Contractors of Information Relating to Greenhouse Gas Emissions
Section 318 would prohibit the use of funds to require any entity submitting an offer for a federal contract to disclose greenhouse gas (“GHG”) financial risk, GHG inventory, or emission reduction targets. In November 2022, the Federal Acquisition Regulatory Council issued a proposed rule requiring contractors to disclose GHG emissions and climate-related risks and to set targets to reduce their GHG emissions. The provision effectively bars DoD from making such GHG representations a condition of a contract award.
- Prohibition on Contracting with Companies that Have Fossil Fuel Operations with Russia
Section 804 would prohibit DoD from contracting with any company that has business operations with an entity that is greater than 50 percent by:
- an authority of the government of the Russian Federation; or
- a fossil fuel company that operates in the Russian Federation, except if the fossil fuel company transports oil or gas:
- through the Russian Federation for sale outside of the Russian Federation; and
- that was extracted from a country other than the Russian Federation with respect to the energy sector of which the President has not imposed sanctions as of the date on which the contract is awarded.
- Prohibition of the Department of Defense Procurement Related to Entities Identified as Chinese Military Companies Operating in the United States
Section 805 would prohibit DoD from procuring goods, services, or technology from an entity on the 1260H list (Entity Prohibition), or contracting for goods and services produced or developed by an entity on the 1260H list or any entity subject to the control of an entity on the 1260H list (Goods and Services Prohibition). The prohibitions do not extend to purchases of goods, services, or technology that connect goods or services to third party services (e.g., interconnection) or to components, defined broadly as an item supplied to the federal government as part of an end item or of another component. The provision requires DoD to issue rules implementing the provision within 180 days of enactment for the Entity Prohibition, and within 545 days of enactment for the Goods and Services Prohibition. The provision becomes effective on June 30, 2026 for the Entity Prohibition, and on June 30, 2027 for the Goods and Services Prohibition.
- Preventing Conflicts of Interest for Entities that Provide Certain Consulting Services to the Department of Defense
Section 812 would prohibit DoD from entering into a contract with any entity providing consulting services to DoD (with a North American Industry Classification code beginning with 5416) that is unable to certify that neither the entity nor any of its subsidiaries holds a contract for “consulting services” with a “covered foreign entity.” The term “covered foreign entity” is defined to include the governments of China and Russia, the government of any other country that the Secretary of State determines has repeatedly provided support to acts of international terrorism, as well as any entity identified on other lists under certain statutes and regulations.
The provision would also require such entities providing consulting services to DoD to maintain a “Conflict of Interest Mitigation Plan” that is “auditable by a contract oversight entity.” Such a mitigation plan must identify any of the entity’s contracts with foreign entities and written analysis providing a course of action for avoiding, neutralizing, or mitigating the “actual or potential conflict of interest” of such a contract with DoD and other information.
DoD must issue a Defense Federal Acquisition Regulation Supplement amendment enacting the provision in 180 days, at which time the provision will become effective.
- Countering Adversary Logistics Information Technologies
Section 825 contains prohibitions that would prevent DoD from using logistics software from the People’s Republic of China. The provision would prohibit DoD from entering into contracts with entities that provide data to “covered logistics software,” defined as LOGINK or any national transportation logistics information platform provided or sponsored by a foreign adversary or a commercial entity controlled by the government of an adversary. “Foreign adversary” is defined to include the People’s Republic of China, the Republic of Cuba, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Russian Federation, and the Bolivarian Republic of Venezuela under the regime of Nicolas Maduro Moros. The provision would also prohibit the Department of Transportation from providing federal grant funding to port authorities that use covered logistics software.
- Amendment to Requirement to Buy Certain Metals from American Sources
Section 833 would amend 10 U.S.C. § 4863 to narrow the qualifying country exception for specialty metals. The provision would require any specialty metal that is procured as a mill product or incorporated into a component to be melted or produced in the United States, the country where mill product or procurement is procured, or another qualifying country. The provision would also require the supplier of components or systems made of aerospace-grade metals (requiring provenance-tracking to comply with flight safety regulations) to inform DoD if any of the materials were known to be manufactured or processed in China, Iran, North Korea, or Russia.
- Enhanced Domestic Content Requirement for Major Defense Acquisition Programs
Section 835 contains a requirement that would increase domestic content requirements for manufactured articles, materials, and supplies connected with major defense acquisition programs. The provision would exempt countries with a reciprocal defense procurement agreement and countries that are members of the national technology and industrial base.
- Prohibition on Supporting Entertainment Projects with Ties to the Government of the PRC
Section 1310 would prohibit funds from being used to knowingly support any film, television, or other entertainment project if the Defense Secretary has demonstrable evidence that the project has complied with, or is likely to comply with, a demand from the Chinese government or Chinese Communist Party to censor the content of the project to advance the national interest of China.
- American Security Drone Act of 2023
Sections 1821-1833 incorporate the American Security Drone Act of 2023, which would ban the procurement or use by the federal government of unmanned aircraft systems that are manufactured or assembled by certain foreign entities, including entities subject to influence or control by China, with exceptions. Key provisions include:
- Prohibiting federal departments and agencies from operating or procuring any covered unmanned aircraft system manufactured or assembled by covered foreign entities, including PRC-based drone manufacturers. (Sections 1823-1824)
- Prohibiting the use of federal funds awarded through contracts, grants, or cooperative agreements to purchase covered unmanned aircraft systems. (Sections 1825-1826)
- Requiring the Comptroller General of the United States to submit a report to Congress detailing the amount of foreign commercial off-the-shelf drones and covered unmanned aircraft systems procured by federal departments and agencies from covered foreign entities. (Sections 1827-1828)
