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Article Highlights:
On May 30, 2024, the DoD issued a final rule codifying DFARS 252.225-7052. This clause restricts covered businesses from sourcing specific metals and magnets from adversarial nations, including Iran, North Korea, Russia, and China.
On January 1, 2027, companies working with the Department of Defense will no longer be able to use certain magnets or metals if they were “mined, refined, separated, melted, or produced” in either Iran, North Korea, Russia, or China.
Covered businesses need to determine which of their parts and products contain the magnets and metals covered by the DFARS rule. These include two specific types of magnets—samarium-cobalt magnets and neodymium-iron-boron magnets—as well as tantalum and tungsten in various forms.
Over the course of the 21st century, China has come to dominate the mining and processing of critical minerals and rare earth elements (REEs). By working tirelessly to expand its access and control of mines all over the world, as well as refining its domestic processing technologies, China now produces the majority of the world’s gallium, magnesium, tungsten, graphite, silicon, and cobalt, among other materials. It also produces well over two-thirds of the world’s rare earths (a family of 17 metallic elements prized for their unique combination of properties).
China’s supremacy in the production of these minerals has become a major challenge for the U.S. America is now highly dependent on its chief geopolitical rival for the raw materials essential to manufacturing everything from batteries and semiconductors to motors and power lines. But in order for the U.S. to achieve greater independence from China when it comes to these powerful resources, it will have to start developing an alternative supply chain. Unfortunately, such a goal has proven elusive, as the U.S. and Europe have taken only minor steps toward establishing autonomy from China’s sprawling critical mineral apparatus.
To accelerate the process of weaning their businesses off China’s resources, the U.S. government has implemented a number of measures, including targeted investments in domestic producers and framework agreements with the European Union. Another strategy has been to impose restrictions on how contractors working with the Department of Defense (Department of War) can source certain critical minerals. These restrictions are laid out in the Defense Federal Acquisition Regulation Supplement, or DFARS.
Thus far, the controls imposed by DFARS have been relatively modest. But upcoming changes to the restrictions are going to force in-scope companies to adjust their mineral sourcing practices in a more dramatic fashion.
What Is DFARS 252.225-7052?
DFARS is a web of federal regulations that restricts how businesses that work with the Department of Defense can source their raw materials, including critical minerals and REEs. On May 30, 2024, the DoD issued a final rule codifying DFARS 252.225-7052. This clause restricts covered businesses from sourcing specific metals and magnets from adversarial nations, including Iran, North Korea, Russia, and China.
DFARS 252.225-7052 covers a specific and relatively narrow set of raw materials:
Samarium-cobalt magnets
Neodymium-iron-boron magnets
Tantalum metals and alloys
Tungsten metal powders
Tungsten heavy alloy (as well as any finished or semi-finished component containing tungsten heavy alloy)
For the first two years or so after the rule’s implementation, it prohibited covered businesses from sourcing any of the above materials that were “melted or produced” in either Iran, North Korea, Russia, or China. But on January 1, 2027, that scope is poised to expand significantly.
The Critical Changes Coming to DFARS 252.225-7052
In an effort to continue compelling U.S. businesses to pivot away from Chinese resources, the U.S. is tightening its regulatory requirements around sourcing certain metals from adversarial nations. On January 1, 2027, companies working with the Department of Defense will no longer be able to use any of the above-mentioned metals if they were “mined, refined, separated, melted, or produced” in either Iran, North Korea, Russia, or China.
This is a meaningful expansion from the previous restrictions, which only prohibited businesses from using covered metals melted or produced in those four nations. But how do these changes impact organizations in practical terms? Prior to January 1, 2027, in-scope businesses will still be able to source the covered metals and magnets from China—as long as they were melted or produced in another nation. “Melted or produced” generally refers to a midstream step where the metals are combined with other inputs and hardened in a furnace, or subjected to comparable processes like atomization or final consolidation.
As long as in-scope businesses did not use China (or Iran, North Korea, and Russia) for that crucial but limited intermediary step, they could still draw from the nation’s critical mineral empire for mining, refining, and separating. With the forthcoming expansion to these restrictions, however, that will no longer be an option. Starting in 2027, covered businesses will need to root China out of their supply chains completely for these metals and magnets. Whereas in the past these organizations only needed to focus on keeping one step in the production process outside of the country, they’re now legally responsible for ensuring that all stages—what some refer to as mine-to-magnet—are China-free.
The Scope of Affected Businesses
DFARS 252.225-7052 imposes these restrictions on all contractors that work with the U.S. Department of Defense. This includes both primary contractors—those that work directly with the agency—and subcontractors, or suppliers, working with the prime contractor. Examples of the types of businesses that will need to comply with the new DFARS restrictions include:
Electronic component manufacturers
Semiconductor manufacturers
Drone manufacturers
Producers of sensors and RF hardware
EMS providers that work with a prime contractor
Metal producers and refiners
How Top U.S. Manufacturers Are Responding
Diligent businesses that have determined themselves to be in scope of DFARS 252.225-7052 are not waiting for the new restrictions to officially take effect on January 1, 2027. They recognize that targeted changes to their sourcing and supply chains take time, and they’re already in the thick of carrying out the necessary steps to assess their exposure and implement changes accordingly.
First, covered businesses need to determine which of their parts and products contain the magnets and metals covered by the DFARS rule. These include two specific types of magnets—samarium-cobalt magnets and neodymium-iron-boron magnets—as well as tantalum and tungsten in various forms. Once they’ve established the goods with these materials in their full material declarations (FMDs), they need to trace those products all the way up the supply chain, including the stages where the metals or magnets were melted and/or produced, separated, refined, and mined. This can be a very challenging process, one that requires sophisticated supply chain mapping and all the campaigning and due diligence that demands.
Once an organization has determined its exposure (or points of noncompliance with the forthcoming restrictions), it can move forward with exploring the available alternative sources. Given the state of the critical mineral supply chain outside of China, this is not a simple or straightforward process, either. Companies may need to consider nations like Japan, Vietnam, Malaysia, and Australia, though none of these countries are close to being capable of fully replacing China’s mining and processing capacities. Instead, the onus is now on U.S. businesses to patch together a network comprised of nations that can each replace some but not all of China’s operations.
DFARS Compliance Starts With Effective Traceability
U.S. organizations that will need to comply with the impending changes to DFARS 252.225-7052 won’t be able to simply swap out a Chinese supplier for another foreign producer. The production of critical minerals and rare earth elements—and how they’re incorporated into parts and products—is dense and multifaceted, and businesses need to understand this progression before making permanent changes to their supply chain.
Arguably more important, companies need to accurately identify exactly where their points of vulnerability are—where, in other words, is China mining, refining, separating, melting, or producing the materials in question in their manufacturing networks. This requires supply chain visibility that extends to the second, third, and fourth tiers—capabilties that many businesses will need to draw on a supply chain risk management tool to achieve.
Supply chain risk management (SCRM) platform Z2 offers supply chain mapping that extends to the nth tier. Z2 draws on three key sources to build expansive, reliable supply chain maps:
Z2 Internal Data: The tool leverages verified supplier relationships, site locations, and taxonomy-based mappings—all stored inside our databases—to establish a strong foundation.
Customer Data: Z2 incorporates all available information from customers. This includes internal records like part numbers, supplier details, trade codes, and known manufacturing locations.
Supplier Campaigning: Finally, the experienced teams at Z2 engage suppliers directly to collect any missing data. All responses are validated against Z2 intelligence, creating a holistic picture of supply chain relationships that extend deep into companies’ sub-tiers.
In addition, Z2’s research teams track whether a DFARS “Declared” status is provided by suppliers, allowing users to see if specific components in their FMDs—as well as the broader marketplace—are compliant with the Defense Department restrictions.
With Z2’s data, intelligence, and experienced teams, businesses can pinpoint their exposures and start building out the supply chain relationships critical to maintaining regulatory compliance. To learn how Z2 can help businesses prepare for the critical changes coming to DFARS 252.225-7052, schedule a free trial with one of our product experts.
