Cautious optimism - 2011 US ITAR reforms - Satellite Evolution Group by pengtt


									                               Global Military Communications

                                                                                                                                     Photos courtesy of US DoD.
Cautious optimism - 2011 US
ITAR reforms
Key satellite and equipment manufacturers are facing the reality of cuts in US military
spending. Many executives in US technology companies have expressed a need to
expand in the satellite and aerospace sectors within the skyrocketing emerging
economies of (BRIC) Brazil, Russia, India, China by removing the only competitive
barrier to their technology exports; namely, the US (ITAR) International Traffic in Arms
Regulations. Richard Kusiolek reports for Satellite Evolution.

The commercial satellite industry is        of larger and higher-value new space-           According to the 2010 (SIA) report,
an important element in the US              craft; Satellite Launch Industry revenues   “the dire consequences of the global
economy, contributing year-on-year          increased by 18 percent, with United        economic downturn were that between
growth, innovation and revenues. US         States launch revenues growing from         year-end 2008 and year-end 2009, the
satellite companies generated an esti-      $1.1 billion to $1.9 billion in 2009; and   US Satellite Industry shed 12,219 jobs,
mated 40 percent of the $123 billion glo-   Satellite ground equipment grew by          or 4.6 percent, linked to the global eco-
bal satellite industry in 2007, according   eight percent, largely due to consumer-     nomic downturn. All four satellite indus-
to the US Satellite Industry Association    oriented products including satellite TV,   try segments were impacted; namely,
(SIA)’s own studies. Satellite companies    broadband, mobile satellites, and GPS       the ground equipment sector had the
are also part of the larger aerospace       devices. US Satellite Manufacturing rev-    largest decline, losing 7,816 jobs, or 7.9
industry, which the Aerospace Industries    enues more than doubled, increasing         percent; satellite manufacturing employ-
Association (AIA) calculates as totalling   the US share from 30 percent in 2008        ment contracted by 1,161 jobs, or 4.1
$204 billion in sales in 2007, of which     to 57 percent in 2009. Forty-one percent    percent; satellite services shed 3,220
$33 billion was for the US sales of space   of commercially-manufactured space-         jobs, or 3.8 percent; and the launch in-
systems.                                    craft launched in 2009 were built by US     dustry was most resilient, losing only 23
      According to the (SIA) 2010 Report,   firms, compared with 22 percent in 2008.    net jobs.”
“Satellite Manufacturing, was the high-     US manufacturers received 19 of these
est growth sector at 29 percent, increas-   orders or 46 percent—down slightly          An ITAR perspective for 2011
ing from $10.5 billion in 2008 to $13.5     from the 52 percent or orders an-           Patricia Cooper is President of the US
billion in 2009 accounting for launches     nounced for US firms in 2008.”              Satellite Industry Association (SIA),

                                              January/February 2011
                                Global Military Communications

                                             Munitions List and controlled under sec-         treatment is largely connected to the
                                             tion 38 of the Arms Export Control Act           transfer of technology exports. It was
                                             (22 USC. 2778).”                                 designed to re-assign satellites to the
                                                  Following H.R. 3616, “satellites and        commercial Commodities Control List.
                                             related items” were added to the US Mu-          The bill never became law. In 2009, For-
                                             nitions List (USML), including the export        eign Affairs Committee proposed and
                                             of completed commercial satellites for           the House adopted a bill that would not
                                             launch, and trade in most US satellite           give direct congressional direction in
                                             components, as well as certain ground            where        satellites     would      be
                                             equipment and software to control                treated…instead it would return directly
                                             spacecraft, and technical data related           to the Executive Branch to make those
                                             to these products.                               differentiations just as they do in other
                                                  Satellites are the only commodities         technology areas. That passed the
                                             on the United States Munitions List              House with bipartisan support and it was
                                             (USML) for which export licensing juris-         part of the State Department’s re-au-
                                             diction was mandated by law rather than          thorisation bill which has not been
                                             regulation. This Strom Thurmond bill left        passed by the US Senate in 2010, but it
                                             the Executive Branch with limited dis-           was a great vehicle for a strong State
                                             cretionary authority over export controls        Department and Senate action, which
                                             for commercial satellites and all related        was the nature of that document. The
Richard Kusiolek.                            technologies, including parts and com-           Security section of that bill which in-
                                             ponents, technical data and defense              cluded satellites was not taken up. With
which includes satellite operators, build-   services. Cooper stated that “(SIA)              the new 112th Congress, we have
ers, launch providers, ground equip-         questions fundamentally whether com-             started up again with new legislation and
ment manufacturers and service provid-       mercial satellite technology merits this         would be up to the House to take up the
ers. Ms. Cooper has been in the satel-       extraordinary and unique position of leg-        issue of (satellites) and there is biparti-
lite industry for 20 years, as a regula-     islative oversight in comparison to all          san support for passage.”
tor, a government advocate for satellite     other sensitive technologies included in               On March 17, 2010, General Kevin
trade and a market access expert for         USML.”                                           P. Chilton, Commander of US Strategic
an FSS operator. In addition, she advo-                                                       Command before the Strategic Forces
cates in defence, public safety, regula-     ITAR reform drivers                              Subcommittee of the House Committee
tion and export controls. (SIA)’s goal is    According to Cooper who spoke on April           on Armed Services testified “…I remain
to ensure that both policies and regula-     2, 2009 before the US House Foreign              concerned that our own civil and com-
tions recognise the important role that      Affairs Committee (HFAC), “SIA believes          mercial space enterprise, which is es-
satellites plays in the nation’s economy,    that US technological leadership in              sential to the military space industrial
its national defence and emergency pre-      space and the competitiveness of                 base, may be unnecessarily constrained
paredness, and its communications net-       America’s space sector is a key com-             by export control legislation and regu-
work.                                        ponent to our nation’s security. As key          lation. Clearly, legitimate national secu-
     Cooper spoke in 2009 that “Satel-       segment of the space industry, the com-          rity concerns must continue to underlie
lites have been crucial to the US De-        mercial satellite industry endorses              the need to restrict the export of certain
partment of Defense’s (DoD’s) commu-         strong, sensible and effective export            space-related technologies, equipment,
nications mission. Commercial satellites     controls which ensure that the most              and services. However, appropriate flex-
have fundamentally changed the mili-         advanced technologies do not fall into           ibility to permit relevant space-related
tary’s ability to connect remote, mobile     the hands of our adversaries…the time            technologies, equipment, and services
and rapidly-deployed units to their com-     is ripe for Congress to review its deci-         technology transfers to allies, or decon-
mands with mission-critical services…”       sion of more than ten years ago to man-          trol of some technologies in a timely
                                             date by legislation that exports of all
US policy foundations                        satellites and related components and
The Strom Thurmond National Defense          technology be controlled by the State
Authorization Act (H.R. 3616) for Fiscal     Department and licensed pursuant to
Year 1999 transferred export licensing       the (ITAR). Notwithstanding their origi-
authority for communications satellites      nal intent, SIA believes that the current
and related components to the US State       rules governing exports of satellites sold
Department. ‘‘Satellite’’ and ‘‘related      commercially have resulted in overlie
items’’ mean satellites and all specifi-     broad regulation that disadvantages US
cally designed or modified systems or        spacecraft and component manufactur-
subsystems, components, parts, acces-        ers in the global marketplace, without
sories, attachments, and associated          necessarily having accomplished the
equipment for satellites as covered un-      desired intent. This has created an im-
der category XV of the International         pact on the broader US space industry
Traffic in Arms Regulations (ITAR). Sec-     and raised concerns about the health
tion 1513 of that Act specified that “Not-   of the underlying space industrial base
withstanding any other provision of law,     supporting the defence, intelligence and
all satellites and related items that are    civil space communities.”
on the Commerce Control List of dual-             In 2011, Cooper spoke that the “mo-
use items in the Export Administration       tivation for satellite (control) is that it is
Regulations (15 CFR part 730 et seq.)        ‘special’ and the only category that his
on the date of the enactment of this Act     handled by Congressional oversight and           Patricia Cooper, President of the US
shall be transferred to the United States    that is ‘unusual. The motivation for that        Satellite Industry Association (SIA).
                                               January/February 2011
                                 Global Military Communications

fashion when commercial availability          procurement in the other two countries.       US economic haemorrhaging
renders their control no longer neces-        The Russian market is open to US com-         Kato commented that: “it is true that
sary should be considered to help en-         panies. We sold only four satellites to       Emerging Countries are trying to in-
sure our space industrial base for the        the China market in the past ten years.       crease their market share of satellite
future.”                                      In a commercial sense that is not             technology. We do not have to talk about
    Romain Bausch, President and              enough to justify the effort. We are the      China. In 1970 Japan received technol-
CEO of SES gave his perspective: “SES         only ones who can do something in the         ogy from US companies, such as GE,
supports effective, predictable and           Chinese market but that is not a huge         Loral, and Ford Aerospace, who enjoyed
transparent US export control policies        profitable return and a very small piece.”    technology exports to Japan. Today
and practices. SES believes that there                                                      Japanese companies are selling two to
is no inherent aspect of satellites and       ITAR-free – the bad and the good              three satellites to the international mar-
their components that requires them to        In April 2009, Cooper spoke that in the       kets and have increased their market
be designated as munitions. This blan-        past few years, European manufactur-          share. Japan’s market share has been
ket designation has disadvantaged             ers have developed the capability to pro-     changed by that. China is the same way.
spacecraft and component manufactur-          duce the requisite parts and compo-           If you look at several countries like Ni-
ers worldwide. Eliminating unnecessary        nents for a spacecraft without US con-        geria and Pakistan and they have a lot
regulatory burdens would simplify the         tent. One European manufacturer,              of critical ‘working together efforts’ on
sale and delivery of our satellite serv-      Thales Alenia Space, has begun to             satellites and launches that they are ex-
ices. In addition, ITAR reform would en-      market an “ITAR-Free” satellite. Because      porting. Japan is a different story. Japan
hance competition worldwide and en-           European countries do not export con-         is starting to sell infrastructure to the in-
able operators to most cost-effectively       trol satellites as munitions, as does the     ternational markets and in the new
procure the best spacecraft and serv-         US, these “ITAR-Free” satellites are          budget, the Japanese Government has
ices available.”                              traded as commercial/dual-use products        put a lot of money for this Satellite/
                                              under far less stringent controls. We         Launch Market Evolution. It is clear that
The impact of ITAR                            know of at least six such “ITAR-Free”         this new market is invading the tradi-
Bill Reinsch, President of the Washing-       satellites sold to date, the first to Chi-    tional US Satellite/Launch market share.
ton DC National Foreign Trade Council         nese and Hong Kong satellite operators,       High tech satellites and telecommuni-
stated that “export reform will not nar-      and more recently to Indonesian, Egyp-        cations are not necessarily special for
row ITAR to only three countries but only     tian and European satellite operators.        US companies. That technology is very
structurally. ITAR is technology based        We also anticipate that German and Is-        much conventional and viewed as nec-
and not destination specific. It is a for-    raeli manufacturers will soon join Thales     essary for telecommunication systems.
gone conclusion, I think; that we will        in beginning to market “ITAR-Free” sat-       Not everyone can build a satellite but it
have to substantially increase exports        ellites. Additionally, manufacturers from     is how each customer views price, qual-
to meet the President’s goal if we are        India, Russia, and China are now mar-         ity, and non-technical issues as well.
going to promote economic growth and          keting complete satellites to customers       Customers are going to the ‘New Pow-
jobs, for we are now a slow growth            beyond their own domestic satellite op-       ers’ to choose them (satellites). The US
economy. Ninety-five percent of the           erators, offering increasing technical so-    cannot argue, I think, that the US is the
world’s consumers are overseas and we         phistication.”                                only (supplier) to rely on for VSAT, C,
are not paying attention to them. There            Kato said that “our company is not       and Ku-band conventional telecommu-
is no market growth here in the US to         a marketing arm of Thales Alenia Space        nications. But when you have high tech
expand business and grow jobs. Satel-         which is a French company, while we
lites must be focused on for this growth.     are an American company and hence
And one of the focuses of the Export          registered with the US State Depart-
Control; namely, the ITAR category            ment. We do not refer to “ITAR-Free” but
which will need to be reviewed is the         “ITAR-none restricted” satellite configu-
satellite category and changes will need      ration technologies. This was not a strat-
to be made. Ninety-five percent of the        egy that we employed to get into the
ITAR reform will be administrative and        market. We viewed this as being able to
five percent involving satellites as ITAR     provide this configuration for a limited
items will require legislative action which   number of customers and we carefully
is now a ‘dry well.”                          checked ITAR restrictions, rules, and
                                              regulations for the US portion of that
Effect on US global market share              everywhere and we found that there
Patricia Cooper, President of the US          were no real issues or regulations in
Satellite Industry Association (SIA),         terms of violations of any sort. That is
stated that “American jobs, US Manu-          why in 2002 we started to put some de-
facturing Industrial Base, and National       velopment resources to come up with
Security, specifically trade with China       the configuration to replace US ITAR
are the key motivations for export con-       restricted components, hardware, and
trols such as ITAR.”                          technology…up to date we only sold ten
     Eddie Kato, CEO, Thales Alenia           satellites under this satellite product
Space North America, Inc. (TASNA),            configuration. If you look at the planning
commented that “non-ITAR restricted           scenario, we did not target massive mar-
countries are the majority of the mar-        kets with this product or strategy. We just
ket. Only three countries, Iran, North        wanted to find what markets this prod-
Korea, and China, are ITAR restricted         uct configuration would be served and
and that is a very small piece of the         where requested by our customers. We
market. China is launching one commu-         are not making a great effort to sell this
nication satellite a year and there is no     satellite configuration.”
                                                January/February 2011
                                 Global Military Communications

payloads or Ka-band systems which are         an analysis be done, and control the           reform was the middle of 2011 anyway
sophisticated systems, I still think that     most sensitive technologies by (ITAR)          at least that is their goal. However from
the US and the European companies             and to allow the other items to be traded      my experience they have missed every
have some kind of advantage. If you           commercially. Treat us like any other          time line goal that they set. I would be
compare US companies over European            high tech product and let us know what         surprised if they met that timeline for
companies, I think that the US has a          is sensitive and what is not in the Ad-        ITAR reform legislations.” Cooper stated
better advantage, but not much.”              ministration’s analysis and regulate           that “you can forget about your crystal
                                              them accordingly!”                             ball as no one knows as we have a new
Architecture of the US 2011 Interna-              According to the 2009 World Intel-         Congress. However, we are hopeful as
tional trade and regulatory regula-           lectual Property Organization, “China’s        there is bi-partisan support in the House
tions                                         rate of growth of patents fillings since       and many of those supporters ITAR)
Cooper commented that “our technol-           1995 has been extraordinary, with an           reform are in positions of leadership and
ogy has not been evaluated by the Ex-         annual growth rate of about 22 percent         respect. Congress has a specific con-
ecutive Branch in twelve years and they       compared to the US’s five percent.”            cern regarding China that it treated with
are treating everything equally carefully.    China appears to be creating technol-          a global orientation. Many of our mem-
The two things to evaluate are (1) coun-      ogy which could very well be re-ex-            bers would like to see all restraints from
try specific concerns, and (2) allow the      ported to the US for manufacturing that        launching from China to go away! As a
Executive Branch to differentiate within      would create jobs.                             group we are saying you do not have to
the satellite category.” Remy Nathan,                                                        address that now. There is a great world
Vice President of the US Aerospace As-        Good, bad, and ugly                            of trade and transactions and they have
sociation expressed that “…there is not       According to Cooper, “the US Satellite         nothing to do with China…free those
a single person that I work with in the       Industry will have to work with the new        concerns that are specific to
(Obama) Administration that is involved       112th Congressional Committee Lead-            China…Congress should not decide
in this (ITAR) modernisation effort that      ership to discuss the (ITAR) reform is-        how         satellites       should       be
believes that the status quo is accept-       sues (as it refers to satellites) and pro-     treated…Congress should trust the
able…”                                        pose new 2011 legislation to be back to        same agencies who evaluate satellite-
                                              the point that we were in December             related technologies such as UAD de-
The one ton Dragon                            2010.”                                         fence technology.”
The United States likely will face stiffer          Would China retaliate economically            Mark Menefee, esq. Baker &
headwinds in resolving trade issues with      or militarily if satellites remain as muni-    McKenzie LLP, Washington D.C. stated
China as the Asian power enters a pe-         tions under the ITAR? Reinsch ex-              on November 30, 2010 in San Jose,
riod of leadership change...”we’re prob-      pressed that “It is difficult to determine     California, that “the ITAR solution was
ably going to be facing a period of sta-      what would happen. One issue is launch         in search of a problem and not neces-
sis,” said Bill Reinsch, President of the     capability on Chinese vehicles and the         sary but a political effort to create a sin-
Washington DC National Foreign Trade          other is technology transfer. They want        gle agency.” Menefee further stated that
Council. “The Chinese are heading into        to create a capability to launch or to cre-    “ITAR export reform will not happen be-
that fairly lengthy period where they         ate a satellite ‘for other uses’ and that is   cause of budget realities…the key mo-
change their leadership and parcel out        very controversial. China tells us to          tivators for export regulatory reform are
new positions.” Reinsch said that “seven      loosen up more technology transfers to         cost and the DOD.” Kato commented
of the nine Politburo standing commit-        them and say they want to lessen the           that “the ITAR reform must be clear and
tee members will be replaced at the           trade deficit with us. They have asked         concise. We must know what is allowed
Communist Party’s 18th Congress in            us to loosen up our export controls and        and what is not. The evaluations should
October 2012. In the meantime, much           they can buy more satellites but               be by a case-by-case basis. The peo-
of China’s focus will be drawn internally     (Obama) Administration has not bought          ple in the US Government and Agen-
amid jockeying and posturing to gain          that ‘line’…the export reform we have          cies may change but the process always
power...I don’t look for dramatic change.”    been talking about will have some posi-        remains the same.”
      Cooper stated that “it is clear from    tive outcome for China.”                            The proposed amendments to ITAR
the language that the real concern of               Kato spoke that “the US players          are not likely to benefit exporters. The cost
the 1999 H.R. 3616 was China; namely,         have benefited by the US falling US            issue of ITAR will remain a main obstacle
that US Technology goes to China. Con-        currency…this will increase the US             to US high technology exports. Risk and
gress felt that the US would be vulner-       market share. I do not completely think        uncertainty in the international market-
able from China and was to control all        that ITAR will improve directly US Indus-      place regarding contractual and legal pen-
transactions. What (SIA) proposed was         trial position in the international markets.   alties are not minor. If business leaders
to let the Administration evaluate satel-     Yet the currency issue is key as ITAR          do not fully understand the US export con-
lite technology for every other country       affects not only US exports but imports        trol system as it applies to their technolo-
but make China specific… with restric-        as well. I agree there is more upside          gies whether it is hardware platforms,
tions specific to China as well as others     than downside. ITAR’s regimen is not           components, subsystems, software, as
which already exist. Four other restric-      only designed for exports. However, we         well as process, it can hit them in the head
tions with respect to China already ex-       do support the improvement of ITAR for         if you are not prepared. Revising the
ist. For example, one of the four is the      it will freeze up more interface coordi-       (USML) can only result in high controls
Foreign Relations Act of 1990-1991.           nation with US companies and that will         versus less. (ITAR) reform will not be a
What we proposed to the House was             essentially lower cost for spacecraft and      quick fix after all and take a longer time in
lifting of the requirement that satellites    launch vehicles. Thus there will be bet-       a politically divided US Congress and Ex-
be viewed as munitions, but allow (ITAR)      ter competition. I think ITAR will not only    ecutive Branches. With clear gridlock be-
controls and to keep the China specific       help foreign industries but also the US”       tween a 112th Republican House and a
controls intact by passing that amend-                                                       Democrat controlled Senate, the probabil-
ment to (ITAR). You would allow the pos-      ITAR’S upshot                                  ity of meaningful (ITAR) reform is like the
sibility of (ITAR) but not eliminate (ITAR)   Reinsch spoke that “they (Obama Ad-            moon; namely, you can see it but you can-
control. Instead, we advocate first that      ministration) said that their goal for ITAR    not touch it.                          GMC
                                                January/February 2011

To top