Source: Space Enterprise Council, U.S. Chamber of Commerce

ISSUE

U.S. industry has been severely impacted by the regulating of U.S. commercial satellite technology as U.S. Munitions List (USML) items, subject to State Department export control jurisdiction.

ANALYSIS

The U.S. export control regime, particularly as it applies to USML items, does not appear to be doing what it was intended – and set up – to do: protect U.S. national security interests in the context of defense trade activity. The primary reason is that the system and its implementers have increasingly had to take on much more than anyone could have expected – and this has seriously impaired performance of their mission. One significant contributor to the system overload is the transfer in 1999 of commercial communication satellite technology to the State Department’s USML.

This action reversed a carefully managed transition to dual-use status that was initiated and advanced by the former Bush Administration, and completed by the Clinton Administration in 1996. Moreover, it was part of a larger rationalization exercise to ensure a defense trade regulatory regime that was focused on achieving its overarching objective: protection of national security. The added burden of having to treat commercial satellites as though they were weapons of war has pushed a system – already stretched to the limit in carrying out its defense trade regulatory charter – well beyond its intended capacity. As the overload persists, the failure of the system to accomplish its objectives deepens – and national security, good government and industry competitiveness all suffer.

We must immediately return to the regime initiated by the former Bush Administration by exercising transparency, predictability, timeliness and recognition of the competitive challenges of an increasingly global marketplace. Export regulations governing commercial satellite technology deserve particular early attention by the Bush Administration and Congress.

Demonstrated, in part, by plummeting U.S. market share over the past 2 years, the net result of re-categorizing commercial satellite technology as USML items – i.e., weapons of war, rather than dual-use items – is a significant adverse impact on U.S. industry competitiveness. Among the burdens to industry competitiveness are:

  • Many activities that did not require an export license under Commerce jurisdiction, including those involving marketing, now require a license, technical assistance agreements (TAA) and, in certain cases, Department of Defense (DoD) monitoring.
  • Additional export licenses, TAA’s and monitoring are now required even for satellites sold to customers in countries that are friendly allies.
  • Export license and TAA processes are not predictable, timely or transparent, creating a major competitive disadvantage for U.S. industry in a commercial marketplace where companies are expected to respond promptly to customer requirements and deliver products on time, or face significant financial penalties and loss of business.
  • Satellites and related components are subject to weapons-related sanctions imposed on foreign countries by the U.S. Government. Although these sanctions generally do not impact the sale of commercial telecommunications and information technology products on the U.S. Commerce Control List (CCL), they do block sales of all items on the State Department’s USML.
  • Satellite technology exports valued at $50 million and above – which covers just about all satellite-related sales – require Congressional notification prior to State’s issuing a license. This process, with its formal and informal timelines, can add several months to the time required to receive an approved license.

    The jurisdictional transfer to State, when combined with the lack of adequate personnel and financial resources at ODTC, has created an overload of substantial proportion on the existing system. Many ongoing activities, e.g., discussions with customer operations service centers, internal discussions with foreign national employees, foreign parts procurements and insurance briefings, require export licensing, further taxing ODTC. Licensing delays for commercial manufacturers and operators mean financial penalties, lost contracts, and ultimately a declining share of the global satellite market for U.S. companies.

    All of this is occurring against the backdrop of an international marketplace that has changed dramatically since 1992, when the export of communications satellites was last regulated by the State Department:

  • Requests for Proposals (RFPs) from customers previously required U.S. manufacturers to respond within 90 days. Today, 30-day response deadlines are not uncommon.
  • The global satellite industry has tripled in size, with an increasing number of foreign satellite operators and international consortiums attempting to capitalize on the significant growth in demand for satellite services.
  • U.S. satellite manufacturers are becoming increasingly global in their business operations due to lower international regulatory barriers and the benefits of strategic partnerships.
  • Production cycle times for satellites have declined dramatically, a scenario common to other high-tech industries. Cycle time is a major competitive advantage for U.S. companies that can be undermined by an export licensing process that delays design review and delivery schedules.

    The issue of U.S. satellite technology export control must be addressed immediately if U.S. companies are to remain competitive in this arena.

    RECOMMENDATIONS

  • Transfer commercial communications satellites from the USML to the Commerce Control List as soon as possible, with appropriate procedural safeguards to address discrete national security concerns.
  • Remove technically equivalent items from the USML that are commercially available on the global international market from NATO allies, Japan, or Australia to permit U.S. firms to compete on an equal basis in the international satellite market.
  • Establish and maintain specific timelines for export control processes that reasonably conform to customer expectations and requirements in the global marketplace.
  • Extend license consolidation and expedited license approval procedures implemented September 1, 2001 for NATO allies, Japan, and Australia to major non-NATO allies and other countries as appropriate, as soon as possible.
  • Establish and maintain adequate funding levels for all U.S. Government export control functions to ensure that, among other things, these functions can occur within timelines that support commercial space industry needs.
  • Conclude international government-to-government agreements that would allow for additional export control-related exemptions as soon as possible.
  • Establish a process for reviewing and rationalizing responsibilities of all U.S. Government entities performing export control-related functions on a periodic basis.
  • Formulate and execute as soon as possible a comprehensive approach to export control that will achieve the overarching objective of safeguarding U.S. national security.
  • Implement the remaining policy changes defined in the June 2000 Defense Trade Security Initiative (DTSI) as soon as possible.