Export Controls and the U.S. Satellite Industry

1. Quynh Tran Saudamini Zarapkar Export Controls and the U.S. Satellite Industry

2. What are exports controls? • Export Control regulations are federal laws that prohibit the unlicensed export of certain commodities or information for reasons of national security or protections of trade. • The Department of Commerce’s Bureau of Industry and Security (BIS) is responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and reexport of most commercial items. • The EAR do not control all goods, services, and technologies. Other U.S. government agencies regulate more specialized exports.

3. What are export controls? • Any item that is sent from the United States to a foreign destination is an export. “Items” include commodities, software or technology, circuit boards, automotive parts, blue prints, retail software packages and technical information. • The items that BIS regulates as “dual-use” – items that have both commercial and military or proliferation applications – but purely commercial items without an obvious military use are also subject to the EAR.

4. Problem Overview • In the late 1990s, Congress made satellite technology subject to International Traffic in Arms Regulations, or ITAR, forcing companies to obtain a State Department license before selling products or sharing information with businesses and governments overseas. • The rules were implemented to protect national security and competitiveness, but they also created new regulatory hurdles for companies and made them slower to deliver products. • Satellite industry advocates and executives said other nations were able to gain a competitive advantage and build up their own indigenous capabilities.

5. Key Provisions of the Arms Export Control Act • Provisions are located in US Code Title 22 Chapter 39 Subchapter III Section 2778 • (a) Presidential control of exports and imports of defense articles and services, guidance of policy, etc.; designation of United States Munitions List; issuance of export licenses; negotiations information – • (b) Registration and licensing requirements for manufacturers, exporters, or importers of designated defense articles and defense services • (c) Criminal violations; punishment for violation of the Act • (d) Enforcement powers of President

6. Key Provisions cont. • (e) Periodic review of items on Munitions List; exemptions • (f) Identification of persons convicted or subject to indictment for violations of certain provisions • (g) Judicial review of designation of items as defense articles or services • (h) Report to Department of State

7. National Defense Authorization Act for Fiscal Year 1999 • On October 17, 1998, President Clinton signed into law H.R.3616, the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999. In addition to authorizing FY 1999 appropriations for the Department of Defense, Section 1513 of the Act transfers jurisdiction over commercial satellite exports from the Commerce Department Commerce Control List (CCL) to the State Department U.S. Munitions List (USML), effective March 15, 1999.

8. Problems resulting from Export Controls for the U.S. Satellite Industry • Congress made satellite technology subject to ITAR in the late 1990s as they were a “dual use” item, i.e. they could have both commercial as well as potential military uses. • ITAR: International Traffic in Arms Regulations • Set of government regulations that control the export and import of defense-related articles and services on the United States Munitions List. • Enacted in 1976 during the Cold War with USSR and were intended to implement unilateral arms export controls • The National Defense Authorization Act for Fiscal Year 1999 transferred jurisdiction over commercial satellite exports from the Commerce Department's Commerce Control List (CCL) to the State Department's U.S. Munitions List (USML) • required all commercial satellites, satellite components, associated technical data, and related ground equipment to be treated as “munitions” for export licensing purposes, regardless of their technical sensitivity.

9. Problems (continued) • Rules were implemented to protect national security and competitiveness, but they also created new regulatory hurdles for commercial satellite companies • The new regulations treated satellites as potential military objects, and thus required DOD monitors to be present at almost all interactions with foreign customers and suppliers. • Regulations also do not differentiate between “friendly” and “unfriendly” countries, resulting in the same strict licensing requirements for all foreign markets, regardless of potential military risk. • U.S. government enforcement increased dramatically in regards to the export regulations of satellites. • The State department published 29 instances of Consent Agreements (agreements entered into by parties charged with breaches of ITAR) since 1999. Compare this to the 12 Consent agreements in the preceding 22 years.

10. Issue: Competing in the Satellite Market • Before satellite companies could contract with foreign parties, they have to obtain DSP-5 export licenses and Technical Assistance Agreements (TAAs) • Manufacturers have to negotiate a TAA that allows a meaningful technical interchange to take place but which also satisfies the State Dept. • Because the majority of satellite sales by U.S. manufacturers involve some foreign entities, either subcontractors, launch providers, foreign insurers and of course foreign customers, a myriad of export licenses are required through the design and manufacturing phase. • Lack of State dept. personnel (at least at the beginning) and uncertainty over the legislation’s mandate caused a significant slowdown in granting of export licenses, sometimes by several months.

11. Issue: Competing in the Satellite Market • Bureaucracy impeded U.S. companies from delivering products as quickly. • Other nations have been able to gain a competitive advantage and build up their own indigenous capabilities in the meantime. • U.S. share of the satellite market has fallen from 73 percent in 1998 to less than 30 percent • Foreign companies have used the U.S. export controls to sell prospective buyers on their products built outside the U.S. • “The European companies developed a product that they branded as ITAR-free, so in other words they didn't use any subcomponents built in the United States. They did that specifically because they knew they could market that satellite around the world and say to the customer, ‘Well, look, you don't have to put up with those U.S. regulations.' ” ~ Barron Beneski, VP of corporate Communications at Orbital Sciences.

12. Policy Proposal • Most technologies employed by major U.S. satellite suppliers are employed worldwide, so efficiency and ability to respond quickly and cost-effectively are the discriminating factors. • Faster turnover in licensing is needed. This can be accomplished by: • Reducing the number of licenses required for foreign interactions, i.e. issuing a single license for a single commodity • Fast-tracking licensing requests that are considered “routine” • Creating a single control list, single licensing agency, unified information, technology system, and enforcement coordination center • Differentiate between hostile countries and allies in order to lessen licensing restrictions between trading partners • Differentiate between sensitive and non-sensitive technology

13. Recent Legislation: What has been done? • H.R. 3288: Safeguarding United States Satellite Leadership and Security Act of 2011 • The bill would authorize the President to remove satellites and related components from the U.S. Munitions List, subject to certain restrictions and Congressional oversight. • Prohibits any satellite or related component from being transferred, directly or indirectly, to: (1) the government of China (PRC) or any PRC entity or person; or (2) the government of Cuba, Iran, Sudan, Syria, or North Korea or any entity or person of Cuba, Iran, Sudan, Syria, or North Korea. • It was Referred to Committee in Nov 2011 and is awaiting to be reported to the Committee and must be passed by the House and Senate before being signed off by the President. • The Obama administration has called for a review of federal export controls as part of its effort to double U.S. exports by 2015. A White House statement issued in December said the lists of products that require federal approval before being sold should be consolidated and made more detailed

14. Sources • http://www.sia.org/PDF/SIA_Press_Release_On_Introduction_of_HR_3288_Satellite_ITAR_Reform_Bill_11.2.11.pdf • Washington Post Article - http://internationaltraderelations.com/Article.Export%20Controls%20--%20Satellite%20(WP%203.28.11).pdf • https://www.aiaa.org/uploadedFiles/Issues_and_Advocacy/Policy_Papers/Information_Papers/1999_Information_Papers/ExportControl-1999.pdf • https://my.tennessee.edu/portal/page?_pageid=43,618777&_dad=portal&_schema=PORTAL • http://www.bis.doc.gov/licensing/exportingbasics.htm • http://www.law.cornell.edu/uscode/text/22/2778 • http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t21t25+2807+0++%28%29%20%20AND%20%28%2822%29%20ADJ%20USC%29%3ACITE%20AND%20%28USC%20w%2F10%20%282778%29%29%3ACITE%20%20%20%20%20%20%20%20%20 • http://pmddtc.state.gov/regulations_laws/aeca.html • http://www.sia.org/news-resources/