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On December 22, 2023, President Biden signed the National Defense Authorization Act for Fiscal Year 2024 into law (<a href="https://www.congress.gov/bill/118th-congress/house-bill/2670/text">P.L. 118-31</a>) (NDAA 2024 or Act). Lawmakers frequently target this type of “must pass” legislation as a vehicle to codify their own, often unrelated policy priorities or “rider” provisions. The NDAA 2024 is no exception, containing a patchwork of trade-related riders that have important ramifications regarding U.S. export controls, sanctions, supply chain issues and other areas of international trade law.

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This bulletin provides an overview of the major trade-related provisions in the NDAA 2024 and is not intended to analyze or explain in detail the resulting provisions of the Act. It intends to generally inform our clients of sections of the NDAA 2024 that impact U.S. trade and foreign policy and the resulting changes to affected U.S. government departments and regulations.

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The most notable export control-related provisions in the NDAA 2024 pertain to the trilateral security partnership among Australia, the United Kingdom and the United States, known as AUKUS. Specifically, Sections 1341–1345 of the Act address longstanding criticism that the International Traffic in Arms Regulations (ITAR) is too restrictive for exports to these major ally countries and that U.S. exporters cannot more efficiently and timely send defense articles, defense services and technical data to Australia and the United Kingdom.

Section 1341 requires the president to institute policies and procedures “to transfer defense articles and services under…the Arms Export Control Act (22 U.S.C. § 2761) related to AUKUS to [ensure] expedited consideration and processing relative to all other [arms dealings] other than [those involving] Taiwan and Ukraine.” One purpose of such a measure is to create “an anticipatory release policy” to streamline the export of such items to Australia, the United Kingdom and Canada through the Foreign Military Sales and Direct Commercial Sales programs.

As a result, the secretary of state will “initiate a rulemaking [process] to establish an expedited decision-making process, classified or unclassified, for applications to export to Australia, the United Kingdom and Canada commercial, advanced-technology defense articles and defense services that are not covered by an exemption under the International Traffic in Arms Regulations.” Section 1345 also mandates the secretary to review items on the U.S. Munitions List within the ITAR every three years to ensure the list remains fresh and updated, given rapid advancements in defense articles and technical data.

The NDAA 2024, per Section 1343, also mandates that the president furnish a report to Congress to conclude whether Australia, the United Kingdom, or both have successfully “implemented a system of export controls comparable to those of the United States.” If the report confirms the existence of a comparable export control regime, certain licensing or approval requirements should be waived for the export of defense articles, defense services or technical data to Australia and the United Kingdom.

Government Contract Provisions Related to China and Russia

Several provisions related to sanctions within the NDAA 2024 are dispersed throughout the Act, imposing various restrictions on the Department of Defense (DoD) and government contractors.

Section 804 prohibits the DoD from awarding contracts to “any person that is or that has fossil fuel business operations with a[nother] person that is not less than 50 percent owned, individually or collectively” by the Russian government or, even more broadly, a fossil fuel company merely “operat[ing] in the Russian Federation.” Notably, though, the term “business operation” does not encompass the shipment of Russian-origin oil and petroleum products, nor does it include actions undertaken for the benefit of Ukraine, as determined by the secretary of defense. These exemptions mirror the Price Cap Policy established by the United States, the G7, the European Union and Australia, aiming to constrain Russia’s funding capabilities for its ongoing invasion of Ukraine. However, it is important to highlight that the ban imposed by Section 804 will expire on January 1, 2030, unless renewed by Congress.

Section 805 prohibits DoD from awarding (or, if applicable, extending or renewing) contracts with “Chinese military companies operating in the United States.” An entity qualifies as a Chinese military company operating within the United States if it has been identified as such, or as a subsidiary or affiliate of such an entity, in DoD’s annual list published in the Federal Register.

Section 812 and Section 825 both address DoD’s dealings with government contractors. Section 812 prohibits the DoD from entering into a contract with any entity that fails to certify that neither it nor any of its subsidiaries or affiliates “hold a contract for consulting services”—i.e., advisory and assistance services—with “covered foreign entities,” meaning the government of China, the government of Russia and any of the various sanctioned companies within those two countries. Technically, in limited circumstances, the secretary of defense can issue a waiver to such a defense contractor, but Section 812 demands that the secretary may only do so if the entity maintains an acceptable “Conflict of Interest Mitigation Plan.” Section 825 bans the DoD from entering into a contract with any entity that provides data to “covered logistics platforms,” which is defined as a transportation logistics information system provided or sponsored by the government of China or a Chinese state-affiliated entity.

Sections 1821–1833, which incorporate the American Security Drone Act of 2023, provide that, with limited exceptions, no executive agency may “procure,” “operate,” “award[] through a contract, grant, or cooperative agreement,” or “use” an unmanned aircraft system that is manufactured or assembled by a sanctioned entity, an entity domiciled in China or subject to influence or control by the government of China, an entity subject to extrajudicial direction from a foreign government, or a subsidiary or affiliate of any of the aforementioned entities. This ban also applies to “associated elements” of an unmanned aircraft system “related to the collection and transmission of sensitive information (consisting of communication links and the components that control the unmanned aircraft) that enable the operator to operate the aircraft.”

Sections 5401–5406 of the NDAA 2024 implement the Combating Global Corruption Act (CGCA). The primary task of the CGCA requires the secretary of state to publish two lists on an annual basis that report upon foreign countries’ anti-corruption efforts and their corresponding successes (or lack thereof).

As specified in Section 5403 of the NDAA 2024, the secretary of state is to publish a public list identifying foreign countries with governments sustaining or making “good progress” on anti-corruption initiatives. Conversely, due to national security reasons, the other list to be published by the secretary will be classified only for the appropriate congressional committees to view; the “classified list” will enumerate countries whose governments are making “limited or no efforts” to thwart domestic corruption and, accordingly, are considered to “not [be] achieving meaningful progress” on anti-corruption endeavors.

To justify which countries appear on the “public list” and the “classified list,” respectively, the secretary of state must annually testify before the appropriate congressional committees in a classified setting. During these classified briefings, the secretary must also identify near- and long-term strategies the United States can implement to help foreign countries combat corruption, too.

However, notwithstanding the importance of these two annual lists, the process for devising them is just as consequential to the imposition of sanctions on foreign governments and/or persons as well by requiring the secretary to scrutinize foreign governments and, by extension, leading foreign government officials, the CGCA also empowers the secretary to “evaluate whether there are foreign persons engaged in significant corruption” who should be subject to “sanctions under the Global Magnitsky Human Rights Accountability Act.”

National Intelligence Review of China-Taiwan Conflict

Finally, Section 7407 of the NDAA 2024 requires the director of national intelligence to conduct a comprehensive study on the global economic impact of a military invasion of Taiwan by China or “certain other aggressive or coercive actions taken by [China] with respect to Taiwan.” As part of this comprehensive study, the director is tasked with outlining specific “economic policy options” available to the United States in a “preconflict phase,” including sanctions and other supply chain restrictions, to exert maximum economic pressure on China such that the country forgoes any militaristic plans against Taiwan.

The NDAA 2024 never explicitly mentions the Committee on Foreign Investment in the United States (CFIUS), an interagency committee empowered to review the national security implications of certain transactions involving foreign investment in the United States. However, two provisions within the Act acknowledge concern about foreign ownership and control of important infrastructure in the United States, thereby indicating continued congressional concern about such foreign investment.

Section 3523 of the Act requires the secretary of transportation, in consultation with the secretary of commerce, to finance a federally funded research and development center to “evaluate how foreign state-owned enterprises with leases, long term concessions, partial ownership, or ownership of marine terminals (including marine terminal operators) at the 15 largest United States container ports affect, or could affect, United States national and economic security.” In doing so, the research and development center will compile a congressional report so that Congress can determine what next steps, if any, are appropriate for securing and advancing national and economic security interests at major U.S. container ports.

Relatedly, Section 7405 of the NDAA 2024 tasks the director of national intelligence, in coordination with the other heads of the intelligence community and the secretary of defense, to “conduct an assessment of the [national security] threat posed to United States ports by cranes manufactured by ‘countries of concern’ and commercial entities of those countries” (i.e., China, Cuba, Iran, North Korea, Russia or Syria) and the potential of such cranes to collect intelligence, disrupt operations at U.S. ports or otherwise impact U.S. national security.

Supply Chain Provisions Related to Critical Metals and Minerals and Forced Labor

There are numerous supply chain-related provisions in the NDAA 2024, with most focusing on the supply chains of critical metals and minerals.

For example, for any major defense acquisition program, Section 833 amends 10 U.S.C. § 4863 to ensure that “any specialty metal procured as mill product or incorporated into a component [thereof]…[will] be melted or produced [either] in the United States,” the country where the mill product or component is procured, or in another qualifying country. Moreover, to better understand the supply chain of aerospace-grade metals, Section 833 mandates that suppliers of such metals for which the provenance of materials must be tracked to comply with certain safety regulations must now inform DoD whether any of the materials used were known to be manufactured or processed in China, Iran, North Korea or Russia.

Section 1414 mandates that the Defense for Acquisition and Sustainment under secretary submit to the appropriate congressional committees a strategy “to achieve critical mineral supply chain independence from covered countries for the Department [of Defense] by 2035.” However, even though this section also requires the development of a strategy to “identify areas of potential engagement and partnership with the governments of countries that are allies or partners of the United States to jointly reduce dependence on critical minerals mined or processed in or by covered countries,” Section 5411 of the NDAA 2024 goes even further, tasking the secretary of state to convene a meeting of foreign leaders “to establish a multilateral framework to end human rights abuses, including the exploitation of forced labor and child labor, related to the mining and sourcing of critical minerals.” Section 5411 thus builds upon the Uyghur Forced Labor Prevention Act of 2023, which assigns a rebuttable presumption that goods from China’s Xinjiang Uyghur Autonomous Region are made by forced labor and cannot be imported into the United States.

Finally, Section 7408 mandates the director of national intelligence to submit to the appropriate congressional committees a report within 180 days of the enactment of the NDAA 2024 that details the ongoing Uyghur genocide, including the “forced labor of Uyghurs, inside and outside of Xinjiang…[and] an identification of any company that is organized under the laws of [China that is] employing forced Uyghur laborers[.]”

China’s Status as a “Developing Nation”

One of the most notable foreign trade policy provisions in the NDAA 2024 is Section 5413, which calls for an end to China’s “developing nation” classification under multiple treaties and international organization structures. This section notes that China’s continued designation as a “developing nation,” which allows the country to enjoy “special and differential treatment,” is inconsistent with China’s status as the second largest economy in the world and so must end. Thus, Section 5413 tasks the secretary of state and U.S. trade representative to submit a report to the appropriate congressional committees identifying all treaties and international organizations that classify the development status of China and, where applicable, the mechanisms within those agreements to ensure the country is upgraded from “developing nation” to “developed nation.”

The NDAA for Fiscal Year 2024 is a prodigious piece of legislation totaling 973 pages. Although its main objective is to set the annual budget of the Department of Defense for military activities, military personnel and military construction, as detailed previously, the law incorporates a myriad of trade-related riders that have significant consequences for U.S. export controls, sanctions, supply chain management and other areas of international trade law. Companies engaged in international business transactions should review this annual “must pass” legislation for any new, or forthcoming, government regulations or reporting questions.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

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National Defense Authorization Act for Fiscal Year 2024 Adds Significant Trade Provisions

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