New Export Law Seen as Boon to U.S. Satellite, Component Makers

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WASHINGTON — The long-awaited satellite export reform measure signed into law Jan. 3 by U.S. President Barack Obama is expected to benefit domestic satellite makers and component suppliers alike, in large part by removing the stigma and headaches associated with having space technology legally classified as weaponry, experts said.

The National Defense Authorization Act (NDAA) for Fiscal Year 2013 repeals a 1999 law that placed all space-related hardware and services, regardless of sophistication or availability, on the U.S. Munitions List, a registry of sensitive technologies whose exports are tightly controlled by the U.S. Department of State. The new law gives the president the discretion to place these items — subject to appropriate national security reviews — on the Commerce Control List (CCL), which contains dual-use items whose exports are regulated by the more business-friendly Department of Commerce.

The next step is for the U.S. government to draft implementing regulations for publication in the U.S. Federal Register, to include categories of space technology proposed for transfer to the CCL. Observers said the proposed regulations likely will track closely with the recommendations of the so-called 1248 report released in April by the U.S. Defense and State departments.

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The U.S. space industry has operated under the weight of stricter export controls since 1999 after Congress, spurred by allegations that China was improving its rocket capabilities through launches of U.S. satellites, passed a law mandating that all satellite-related hardware and technology be placed on the Munitions List. That action reversed a trend that had seen commercial communications satellites, with the exception of the most sophisticated ones, being shifted to the CCL.

The NDAA maintains a de facto ban on transferring U.S. satellite hardware to China or North Korea, or to any countries that are considered state sponsors of terrorism. Although the president retains the discretion under certain circumstances to seek a waiver to permit, for example, the launch of U.S. satellite hardware aboard a Chinese rocket, the law would require congressional notification and directs that any such request be met with a presumption of denial.

Similarly, as has always been the case, companies seeking to launch U.S.-built satellites on foreign rockets — most commercial satellites currently are launched on Russian or European rockets — will still need a State Department license, known as a Technical Assistance Agreement, to hold the discussions necessary to mate the two vehicles. In addition, the presence of U.S. Defense Department monitors is still required for launches of U.S. hardware aboard foreign rockets, with the exception of those operated by close U.S. allies.

The new law is “a studied, elegant solution to a decade-old problem,” said Patricia Cooper, president of the Satellite Industry Association, a trade group based here. “It does not mean the elimination of controls on exports of satellites and related items. It does mean that the legislative measure that had removed executive discretion from the process is now gone.”

Competitive disadvantage

U.S. satellite and component makers have complained over the years that export control laws, and more specifically the just-repealed measure designating all space technology as weaponry, have hurt their competitiveness in the international commercial market.

According to a January 2012 report by the Aerospace Industries Association, a trade group here, the U.S. share of the global satellite manufacturing market has dropped from 65 percent to as low as 30 percent since 1999. The report says U.S. companies lost $21 billion between 1999 and 2009 due to the export regime at a cost of 9,000 jobs annually.

Not everyone agrees with those numbers, or that export restrictions are solely responsible, however.

European satellite manufacturers have narrowed the technology gap between themselves and their U.S. counterparts, for example. Moreover, in recent years a U.S.-based company, Space Systems/Loral of Palo Alto, Calif., has arguably been the most successful of all commercial satellite manufacturers.

Nonetheless, there is widespread agreement that the NDAA will provide a measure of relief that will make U.S. manufacturers more competitive globally.

“Overall, I think it’s great for the industry,” said Stephen E. Smith, an attorney specializing in space law with Sherman & Howard LLC of Denver. Smith previously was vice president and general counsel at Denver-based Lockheed Martin Space Systems, with oversight responsibility for the company’s export compliance division.

In a Jan. 2 telephone interview, Smith said that while the big satellite prime contractors had learned to successfully navigate the stricter export control system, they still had to battle a perception among prospective overseas customers that their products came with complicating baggage. He cited the development by European manufacturer Thales Alenia Space of a satellite devoid of U.S. components — and thus not subject to U.S. export rules — as evidence that “they viewed that as a competitive advantage.”

Cooper characterized the weaponry classification for all satellite-related items as an “albatross” that applied to more than just satellite hardware. For example, she said, a U.S. manufacturer that builds a satellite for a U.S. customer and launches on a domestic rocket still must obtain a State Department license to hold the technical discussions necessary to obtain insurance coverage, virtually all of which comes from non-U.S. providers.

“It’s not just physical items; it’s everything that goes with it,” Cooper said in a Jan. 2 interview.

Most European-built commercial satellites contain at least some U.S. components, and suppliers of this hardware could be the biggest beneficiary of the new law, observers said. These companies typically do not have large staffs dedicated to ushering products through the export licensing process and tracking them once they are shipped.

Removal of this hardware from the Munitions List will give these companies “one less thing to worry about,” Smith said.

Cooper said these worries had a chilling effect on the supplier base, possibly deterring small companies from getting into the component business or giving those with a limited space-product portfolio an incentive to exit.

Jay K. Hennig, president of Moog Space and Defense Group of East Aurora, N.Y., a major supplier of satellite components with a large overseas customer base, said he expects to see a majority of his company’s heritage products transferred to the CCL. “Though we expect a learning curve and potential delays in authorizations in the beginning, we are eager to have less stringent controls on many of our less sensitive components and technologies and we hope to benefit from ‘No License Required’ classifications under the CCL,” he said in an emailed response to SpaceNews questions.

Learning curve

The notion that the export licensing process initially could take longer for components transferred to the CCL as Commerce Department regulators learn the new regime was shared by several industry observers. Indeed, the biggest problems with the State Department’s export regime were reported in the years immediately following the transfer of virtually all space-related items to its purview.

Experts cautioned that it will be difficult to assess the full impact of the new law until after the implementing regulations are finalized, something they do not expect to happen until late this year.

According to the congressionally mandated 1248 report, items that could be transferred to the Commerce Control List without harming U.S. national security include communications satellites that do not contain classified components, certain kinds of remote sensing satellites and components “with performance parameters below thresholds specified for items remaining on the” Munitions List.

Among the items not likely to be transferred to the CCL, according to Smith, are dedicated military payloads hosted aboard commercial satellites, most of which are owned by international companies and launched on foreign rockets. Hosted military payloads may contain sensitive encryption and radiation-hardening technologies that likely will remain on the Munitions List, he said.

The final version of the NDAA did not include language that was in the U.S. House of Representative’s version of the bill that would have required the White House to provide detailed reports of all items being transferred to the CCL. That provision had drawn objections from White House officials.

Smith noted that the final law still requires several reports from the White House as it implements the law, making it clear that Congress still intends to keep a close eye on this matter. But in passing the latest NDAA, Congress has sent a clear message that it wants to help the industry, he said.