NdFeB magnets

U.S. Department of Commerce commences a national security investigation under Section 232 of the Trade Expansion Act of 1962, as amended, on NdFeB permanent magnet imports

On September 24, 2021, the Biden Administration initiated its first Section 232 national security investigation. See U.S. Department of Commerce, U.S. Department of Commerce Announces Section 232 Investigation into the Effect of Imports of Neodymium Magnets on U.S. National Security, September 24, 2021, https://www.commerce.gov/news/press-releases/2021/09/us-department-commerce-announces-section-232-investigation-effect. As stated in the press release:

“Interested parties are invited to submit written comments, data, analyses, or other information to BIS by November 12, 2021. This is the first Section 232 investigation initiated under Secretary Raimondo’s leadership, and is consistent with a recommendation by the White House in the Biden-Harris Administration’s 100-day supply chain reviews to evaluate whether to initiate this investigation.

“Critical national security systems rely on NdFeB permanent magnets, including fighter aircraft and missile guidance systems. In addition, NdFeB permanent magnets are essential components of critical infrastructure, including electric vehicles and wind turbines. The magnets are also used in computer hard drives, audio equipment, and MRI devices.

“If the Secretary finds that NdFeB permanent magnets are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall advise the President in her report on the findings of the investigation. By law, the Secretary of Commerce has 270 days from initiation, until June 18, 2022, to present the Department’s findings and recommendations to the President.

“U.S. Secretary of Commerce Gina M. Raimondo released the following statement: ‘The Department of Commerce is committed to securing our supply chains to protect our national security, economic security, and technological leadership. Consistent with President Biden’s directive to strengthen our supply chains and encourage investments to shore up our domestic production, the Department initiated a Section 232 investigation on imports of NdFeB permanent magnets to determine whether U.S. reliance on imports for this critical product is a threat to our national security.’”

Commerce’s Bureau of Industry and Security published in the Federal Register on September 27, 2021 the formal request for public comments. See U.S. Department of Commerce Bureau of Industry and Security, Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of
Neodymium-Iron-Boron (NdFeB) Permanent Magnets, 86 Fed. Reg. 53,277-278 (September 27, 2021). The notice contained eight questions that the Department was particularly interested in getting comments on from the public:

“The Department is particularly interested in comments and information directed to the criteria listed in § 705.4 of the NSIBR as they affect national security, including the following:

“(i) Quantity of or other circumstances related to the importation of NdFeB permanent magnets;

“(ii) Domestic production and productive capacity needed for NdFeB permanent magnets to meet projected national defense requirements;

“(iii) Existing and anticipated availability of human resources, products, raw materials, production
equipment, and facilities to produce NdFeB permanent magnets;

“(iv) Growth requirements of the NdFeB permanent magnets industry to meet national defense requirements and/or requirements for supplies and services necessary to assure such growth including investment, exploration, and development;

“(v) The impact of foreign competition on the economic welfare of the domestic NdFeB permanent magnets industry;

“(vi) The displacement of any domestic NdFeB permanent magnets production causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;

“(vii) Relevant factors that are causing or will cause a weakening of our national economy; and

“(viii) Any other relevant factors, including the use and importance of NdFeB permanent magnets in critical infrastructure sectors identified in Presidential Policy Directive 21 (Feb. 12, 2013) (for a listing of those 16 sectors see https://www.dhs.gov/cisa/critical-infrastructure-sectors).”

86 Fed. Reg. at 53,278.

The 100 day supply chain review referenced in the Commerce press release was released in June 2021. See White House, BUILDING RESILIENT SUPPLY CHAINS, REVITALIZING AMERICAN MANUFACTURING, AND FOSTERING BROAD-BASED GROWTH, 100-Day Reviews under Executive Order 14017 (June 2021), https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf. Discussion of the challenges relating to NdFeB permanent magnets is taken up in the Review of Critical Minerals and Materials by the Department of Defense (pages 151-204 (see pages 156-57, 160, 165-66, 170-171, 174, 177, 183, 189-92)).

But the White House Report (and the various sources cited therein) follows many years of articles and reports looking at the potential national security and economic security risks from dependence on certain minerals, materials and downstream products incorporating the same from limited foreign suppliers.

The challenge for the U.S. with NdFeB permanent magnets is that supply of both the rare earth mineral and the processed product and down stream product are dominated by China with projected demand growth far outstripping likely existing supplies. See, e.g., Physics Today, US government acts to reduce dependence on China for rare-earth magnets, February 1, 2021, https://physicstoday.scitation.org/doi/10.1063/PT.3.4675 (“Driven by an expected surge in demand for electric vehicles (EVs), wind turbines, and other applications requiring permanent magnets, consumption of many rare-earth (RE) elements is expected to outstrip the global supply within a decade. Coupled with an almost total US dependence on China for separated REs and the magnets made from them, the impending shortage has prompted the US government to subsidize and stimulate domestic RE mining, metal-making, and magnet manufacturing.”)(contains a detailed review of U.S. efforts to expand options for procuring neodymium and magnets made with neodymium).

WTO issues

Many of our larger trading partners have challenged the U.S. 232 investigations on steel and aluminum and resulting import relief imposed by former President Trump. While the U.S. position has been that GATT Art. XXI does not permit WTO panel review of actions taken for national security reasons, prior panels looking at the issue have felt authorized to reach the merits. Decisions by panels in the various challenges to steel and aluminum 232 actions are expected possibly by the end of 2021. See United States — Certain Measures on Steel and Aluminium Products, WT/DS544/11 (9 February 2021)(“the Panel now expects to issue its final report to the parties no earlier than the second half of 2021.”)(identical extensions noticed in cases by India (WT/DS547), EU (WT/DS548), Norway (WT/DS552), Russian Federation (WT/DS554), Switzerland (WT/DS556), Turkey (WT/DS564).

As the report to the President from Commerce is likely to be presented in June 2022 (statutory time limit is 270 days after initiation), the Administration will have time to consider how, if at all, it will respond to any WTO panel decisions in the steel and aluminum cases and whether it will appeal any such panel decisions (likely if adverse). If the panels do not limit their reports to indicating national security actions are not reviewable, it is unlikely that Commerce will address issues of concern to the panel if potentially relevant in the U.S. investigation of NdFeB permanent magnets. But that could occur.

However, the U.S. interest in resolving the Appellate Body situation will likely be affected by whether national security policy decisions are accepted as nonreviewable by trading partners and the WTO’s dispute settlement system.