Satellite Export Control Reform: Almost There . . . But Important Steps Remain

January 2013Advisories

On January 3, 2013, President Obama signed into law the National Defense Authorization Act for Fiscal Year 2013 (NDAA), which included long anticipated satellite export control reform provisions. Before we cover what is expected to change and when, it’s important to review how we got here in the first place.

Brief History of U.S. Satellite Export Controls

The history of U.S. export controls on satellites is long and tortured. In the early 90’s, U.S. origin communication satellites and their specially designed parts and components were subject to the jurisdiction of the U.S. Department of Commerce under the Export Administration Regulations (EAR). Under the EAR, the export of U.S. communication satellites and related items was largely free of restrictions under U.S. law, except with respect to certain countries. This enabled the U.S. satellite industry to increase its worldwide market share. A majority of satellites were produced by the United States, and even foreign-produced satellites were largely based upon U.S. technology and included substantial U.S.-origin content. U.S. satellites and foreign-produced satellites containing U.S.-origin content or based upon U.S. technology were regularly launched by foreign parties, including on occasion by China, with little regulatory oversight. This all changed radically during the late 1990s as a result of certain activities in China and a resulting Congressional backlash.

In the mid-1990’s, Loral Space & Communications and Hughes Electronics were each authorized by the Commerce Department to launch satellites out of China on Long March rockets. Both launches failed, which triggered a Chinese investigation to determine what went wrong. Allegations later surfaced suggesting that the U.S. companies helped the Chinese determine the cause of the launch failures and in so doing transferred sensitive information that helped the Chinese strengthen their rocket and missile design capabilities. A Congressional committee was tasked with investigating the allegations. In response to the committee’s findings, Congress passed the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (the “Strom Thurmond Act”). The Strom Thurmond Act included a provision that directed the U.S. Department of State to assume licensing jurisdiction over all satellites, including commercial satellites and their specially designed parts and components (and related technologies), under the International Traffic in Arms Regulations (ITAR).

Compared to the EAR, licensing and other requirements under the ITAR are much more restrictive. These restrictions include licensing on essentially all transfers of U.S.-origin satellites and related items, as well as retransfer and re-export controls on foreign recipients of U.S. –origin satellites and related items. In addition, the ITAR includes an outright ban on the transfer of U.S.-origin satellites, and even foreign-produced satellites that contain U.S.-origin parts or components, to China and certain other embargoed countries, including for launch purposes. Other nations, including EU countries, have never imposed similar restrictions with respect to commercial satellites.

Many have argued persuasively that the imposition of these unilateral restrictions decimated the U.S. satellite industry, with earnest calls for the return of control over satellites to the Commerce Department. However, because Congress had mandated that the State Department exert control under the ITAR, thus removing the President’s traditional authority to determine the export control status of particular items and technologies, there was no hope for such change without further Congressional action. Congress finally answered the satellite industry’s pleas by passing the NDAA.

Changes Authorized by the NDAA (and More Importantly, What is Yet to be Authorized).

The NDAA authorizes the President to proceed with easing export controls on certain U.S.-origin satellites and related items, while maintaining certain existing controls. Thus, the NDAA does not itself remove ITAR controls on U.S. commercial satellites and related items, but it does return to the President the authority to determine which items and activities are worthy of control under the less restrictive EAR regime. On the other hand, the NDAA mandates the continued ban on exports and re-exports of U.S.-origin satellites and related items to China and North Korea, and any other country designated by the State Department as a state sponsor of terrorism (including launching related activities in any of these countries).

In terms of actually easing export controls over satellites, we expect that the Obama Administration will largely follow the recommendations of the U.S. Department of Defense and the State Department in their so-called Section 1248 Report released on April 28, 2012. The Section 1248 report concluded that the following could be subject to EAR control without causing harm to national security:

  • Commercial satellites that do not contain classified components;
  • Remote sensing satellites below certain performance thresholds (e.g., lower resolution); and
  • Systems, subsystems, parts, and components associated with these satellites (including certain related ground-based telemetry, tracking, and control systems), with performance parameters below items designated for continued ITAR control.

While the Section 1248 Report advocated for the easing of export controls over commercial satellites, the DoD and State Department also recommended that services provided in support of foreign launch operations for EAR controlled satellites continue to be subject to the licensing requirements of the ITAR. Therefore, a license known as a Technical Assistance Agreement under the ITAR would be required in order for a U.S. party to furnish assistance in the integration of a commercial satellite on a foreign launch vehicle, or in a launch failure investigation. The Section 1248 Report also recommended that the DoD should be given discretion to determine the need for applying “special export controls” (e.g. government monitoring and oversight) on launch operations regardless of location or parties involved, which means that EAR controlled satellites could be subject to monitoring depending on the countries involved in the launch.

Next Steps and Timing

As noted, actual change to existing export controls on U.S.-origin commercial satellites and related items has not yet occurred. Rather, important steps remain to be completed by the President before the U.S. satellite industry can begin to enjoy the benefits of the legislation. Specifically, the President must:

  • Provide a report to Congress indicating that the removal of commercial satellites and related items from ITAR control is in the national security interest of the U.S., including identification and analysis of any differences between the draft regulations proposed in the Section 1248 Report and the final regulations to be enacted;
  • Draft implementing regulations, following the detailed and time-consuming process for rulemaking dictated by the Administrative Procedures Act (including notice to, and receipt of comments from, the public); and
  • Establish end-use monitoring procedures for satellites that are exported under the EAR.

We expect that it will take at least 6-12 months for any changes to actually take effect. Stay tuned as we expect 2013 to be a promising year of change for commercial satellite manufacturers.

For additional information regarding U.S. export controls on satellites and related items, or help with any other export control compliance matter, please contact Kerry T. Scarlott as follows.

Kerry T. Scarlott
[email protected]

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