Defense Science Board Examining Impact of U.S. Export Controls

WASHINGTON — A Defense Science Board task force has beg un working on a study intended to determine the effect U.S. export controls have had on the country’s space industrial base.

The study was formally requested Sept. 26 in a letter to the Defense Science Board from Ken Krieg, undersecretary of defense for acquisition, technology and logistics. A Pentagon official said the study is intended to address industry concerns that the International Traffic in Arms (ITAR) regulations in particular have put U.S. companies at a disadvantage in the global marketplace.

“This is a hot topic probably less within DoD (Department of Defense) than for industry,” the Pentagon official said. “In fact, [the creation of the task force] could be proof that, if you hear someone say something long enough — even at DoD they start to listen.”

Krieg and Undersecretary of the Air Force Ron Sega are co-sponsors of the task force. The chairman is former Martin Marietta President A. Thomas Young, who has chaired several prominent DoD space studies in recent years, including one on acquisition reform. The vice chairman is Aerospace Corp. President Bill Ballhaus. Lt. Col. Russ Ethridge of the National Security Space Office is the executive secretary. John Douglass, president and chief executive officer of the Aerospace Industries Association (AIA), is also on the task force.

Krieg directed the board to: review previous and any other ongoing studies of the export issue; assess DoD’s future needs and anticipate U.S. industry’s likely ability to meet those needs; determine if the shift of export jurisdiction for communications satellites from the Commerce Department to the State Department significantly affected the health of the space industrial base; determine the effectiveness of current and likely future controls for enhancing national security; and recommend policy improvements.

Krieg also asked the task force to determine whether export controls have had any impact on U.S. international relations or joint space ventures.

Young, in particular, sources said, is likely to base his opinions strongly on the numbers, whichever way they fall.

U.S. satellite manufacturers and their subcontractors are believed to have been hardest hit by the export control measures that went into effect in 1999 after passage in 1998 of the Strom Thurman Defense Authorization Act of 1999, which directed the government to shift jurisdiction for satellite exports from the U.S. Commerce Department to the U.S. Department of State.

That shift went into effect in March 1999.

In 1998, the year before the shift, U.S. companies won 26 of the 35 commercial satellite orders that were competed commercially that year. In 1999, U.S. satellite manufacturers won 17 of the 22 orders competed that year as the market began to shrink as a result of the collapse of the global telecommunications market.

By 2000, U.S. market share had dropped to less than 50 percent with U.S.-based companies winning nine of the 19 commercial satellite orders. In 2005, U.S. firms won 12 of the 20 commercial satellite contracts competed globally. Those dozen U.S. wins in 2005 included Orbital Sciences Corp.’s contracts for four small geostationary satellites, a category that was not as large in the late 1990s as it is today and one that Orbital continues to dominate although the Europe’s EADS and the Indian Space Research Organi sation have started a joint venture to compete for that smaller class of geostationary commercial communication satellites.

The terms of reference that Krieg signed to create the task force notes that the percentage of foreign components in U.S. spacecraft has increased, while the “U.S. share of the global space market has declined.”

It also notes that lower-tier U.S. suppliers “are struggling to survive due to low profit margins and increased foreign competition.” The impact on lower-tier contractors is something that does not show up in the satellite prime contract tallies compiled by organizations like the Satellite Industry Association.

Many in industry have complained for years that ITAR was a major factor in declining U.S. market share in satellite manufacturing.

Export control reform has been a top AIA priority for the past several years. The group’s goals this year include: laying the foundation for a new, more modern export control system; creating clear policies that “accommodate critical security and economic interests;” and revising the congressional notification process.

“I find it interesting that some in DoD today are either ignorant of, or accept no responsibility for, the decline of the U.S. space industrial base,” said an industry source who has followed the issue for years. “I suppose they may believe it is their responsibility to act only after the satellite community collapses. Their indifference or arrogance may have stopped the leakage — to the degree there was actual documented leakage — of U.S. satellite-related technology, but no one will want what technology remains anyway because it will have deteriorated to mediocrity — but it will be our mediocrity,” this source said.

But not everyone in industry dislikes ITAR, another industry source said . “If you know how the system works and you have the people to process licenses, it can be a competitive advantage for you.”