The First Barrier: The Impact of Export Controls on Space Commerce
The U.S. policy on export controls in 2009 is basically the same policy that existed in 2005, and it is deeply flawed. The policy, known as ITAR (for U.S. International Traffic in Arms Regulations), governs all space-related matters and requires State Department licensing through a process that is both cumbersome and ambiguous. This bureaucracy also confounds U.S. efforts to conduct space research and operations in cooperation with international partners. Although the problems have significantly worsened since our 2005 paper, recognition of the magnitude of the problem is more widespread today than it was four years ago.
In 2005 we emphasized that the success of the U.S. space science and exploration programs is closely related to the success of the commercial space industry. We noted that revision of ITAR was essential for the United States to improve its competitiveness in space commerce, particularly in the satellite industry.
Since then, European aerospace companies have continued to encounter problems with U.S. trade restrictions. In response, they are choosing to avoid dealing with U.S. export controls by not using American-made parts, by becoming “ITAR-free”—meaning that their products are not subject to ITAR’s numerous restrictions and the U.S. government’s licensing requirements. Indeed, non-U.S. aerospace companies are advertising “ITAR-free” as a major selling point.
The European Aeronautic Defense and Space Company (EADS) and other European companies have been working to develop components that can replace comparable U.S.-made parts. EADS has developed a satellite motor that is completely ITAR-free and therefore not subject to U.S. export license restrictions, allowing competitive access to worldwide customers. France’s Alcatel Space has had a company policy since 2002 to build ITAR-free communications satellites in order to avoid U.S. control over sales. On April 12, 2005, Alcatel launched its first ITAR-free satellite on a Chinese rocket. The company also received two major satellite contracts from China in 2005. Marotta, a British maker of spacecraft propulsion and propellant management equipment, advertises that its products “are European and hold ITAR-free status.” And when Surrey Satellite Technology, another British firm, discusses its satellite propulsion systems, they make clear that their systems are “completely ITAR-free.”3
China has also been successful in pursuing space technology on its own. A U.S. policy that bars China from launching satellites with U.S. components had left China seeking customers from second-tier operators in Asia, Africa, and South America. Recently, however, China has, in addition to its contracts with Alcatel, secured a contract to launch European-based Eutelsat Communications’ five-ton satellite. Made without any U.S. components, the Eutelsat satellite is scheduled for launch by China’s Long March rocket in 2010. China’s launch bid, estimated to be as much as 40 percent below Western competitors, gives it a cost advantage. Other potential launch customers for China are France’s Thales Group and Italy’s Finmeccanica, which build satellites without U.S. components. China now has a solid track record, with fifteen commercial satellite launches since 2002, the most recent being a communications satellite for Venezuela in October 2008. China has scheduled fifteen more commercial satellites to be sent into orbit in 2009.
A 2007 Air Force Research Laboratory (AFRL)/Department of Commerce (DOC) report highlighted these and other problems being experienced around the world by the U.S. aerospace industry. The report, Defense Industrial Base Assessment: U.S. Space Industry, showed that complying with U.S. export control regulations carries a high price tag for U.S. companies and harms their global competitiveness. According to the report, export control compliance costs in the United States averaged $49 million per year industry wide. Compliance costs grew 37 percent during the 2003–2006 period, with the burden of compliance significantly higher for smaller companies.4
The report goes on to state that smaller companies feel that ITAR restrictions and limits are a major impediment to their ability to respond to proposal requests and subsequently sell products in foreign markets. Some smaller companies are starting to leave the space industry because of a sustained absence of profitability and a refusal of some foreign companies to deal with ITAR licensing issues. As a percent of foreign sales, the cost burden on smaller companies is nearly eight times that of major firms. These compliance costs include insurance costs, consulting services, compliance-training costs, and Defense Technology Security Administration monitoring costs. For companies that are operating on tight budgets, these accumulating costs can be devastating.
According to the AFRL/DOC report, average net margins are thin and below average for the smaller suppliers, around 5 percent, compared to 9 percent in the high-technology manufacturing sectors in the general economy. A direct correlation exists between export policy, the cost of compliance, and the financial health of the smaller suppliers. For entrepreneurial companies, the net margins (if they exist) are even lower because of the cost of compliance. Entrepreneurial companies have had to restrict discussions with several foreign investors because the companies could not provide the information to perform a due diligence, and this has impacted the availability of investment capital.
This exodus has significant implications for the U.S. industrial base. An Aerospace Corporation analysis published in 2007 expressed concern about the U.S. space supplier base, where in certain critical areas, there is only one domestic supplier left or one financially weak supplier.5
A 2007 white paper published by the Space Foundation in Colorado Springs, Colorado, noted that an overly restrictive export control regime, such as ITAR, results in an enfeebled and uncompetitive domestic space industry and can ultimately do as much damage to national security as a lax regulatory system. The foundation expressed concern that the United States is effectively ceding the dominant position in space that it has enjoyed for sometime by allowing the expertise of the U.S. space industry to deteriorate. At the same time, the United States’ stringent export policy has essentially allowed global competitors to catch up in the global aerospace marketplace and develop capabilities that, in many instances, are similar to those developed in the United States. In Europe, as demonstrated by EADS and Alcatel, U.S. components and technology are slowly but surely being designed out of systems from satellites to rocket motors.6
The present U.S. export controls are also negatively impacting scientific research. The Space Studies Board of the National Research Council (NRC) of the National Academies noted this issue in a report summarizing a September 2007 workshop that included participants from the space research, export control, and policy communities to discuss the application of ITAR to space science.7 Their report made note of the conflict related to the present export control regulations and scientific research.
Scientific research encourages and thrives on open and free discussions and the interchange of ideas and approaches. Solutions to the environmental problems facing today’s world also require international cooperative research. But the current export rules greatly constrain or inhibit such interactions. Much of the university research—basic research—leading to these solutions is government-sponsored and falls under ITAR jurisdiction. ITAR licensing is also required when students or researchers from other countries participate in research. Obtaining ITAR approval places an added burden on researchers and creates uncertainty as to when and if approval will be forthcoming. Additionally, other nations are reluctant to subject themselves to restrictions created by U.S. law and regulations. As a result, the report said, foreign researchers view cooperative research with the United States as less and less desirable.
The current export control laws also raise diplomatic and military concerns. Gordon England, U.S. Deputy Secretary of Defense under President Bush, contends that technology exports should be encouraged because
in this world of coalition warfare and building partnership capacity, it’s essential for us and our friends and allies to have greater interoperability . . . even with vastly different levels of investment. At every level of military activity, from discussions of interoperable hardware designs to battlefield support, the unintended consequences of ITAR can affect the ability of troops and their support personnel to carry out vital tasks.8
The same is true of cooperative endeavors in human space exploration where a complete understanding, technically and operationally, of the spacecraft and its systems and the overall mission is critical. Looking back, had ITAR requirements been in place during the planning and operation of the space shuttle and ISS, with their multination crews and control centers, the result could have led to life-threatening situations. Indeed, substantive international cooperation probably would not have been possible.
If placing space activities under ITAR yielded national security gains, then perhaps all the negative impacts on commerce and science, even military capability, would be worthwhile. But that is not the case. The current policy is simply the result of a “political football” being tossed around by policy-makers who assert that unfriendly nations will steal U.S. technology if the United States does not “lock it all down.” However, much of that technology is available for purchase in other parts of the world, and U.S. policies are encouraging countries to develop components and systems that are comparable or superior to U.S. technology, for their own use and for the world market and in lieu of using U.S. components and systems. The Obama administration needs to place a high priority on changing this policy and doing so quickly.
Further compounding the damage done to U.S. industry, export controls and visa restrictions are preventing skilled scientists and engineers from joining the U.S. workforce. Bill Gates, chairman of Microsoft Corporation, has testified to Congress that
the United States is driving away the world’s best engineers and computer scientists by limiting H-1B visas and other immigrant worker programs. More than half of the students in computer science programs at top U.S. universities are from other countries, but a limit on H-1Bs means many of those students can’t stay in the United States after they graduate. . . . The fact is, other countries’ smartest people want to come here, and that’s a huge advantage to us and in a sense, we’re turning them away. . . . I believe this country stands at a crossroads. . . . Economic progress depends more than ever on innovation. If we do not implement policies like those I have outlined today, the center of progress will shift to other nations that are more committed to the pursuit of technical excellence.9
Even though the need for more engineers and scientists is clear, companies are starting to phase out the hiring of foreign nationals because of the stringent U.S. export control policy.10 Hiring a foreign national requires an export license, a technology control plan, special training in export control compliance, facility modifications, computer network architecture modifications, and escorting and monitoring the employee. To ensure that it is innovative and competitive, U.S. industry needs to take advantage of the capabilities provided by foreign scientists and engineers. But to do so requires that U.S. export control rules and immigration policies be modified.
Retired U.S. Air Force Col. David Garner, former chief of the Defense Threat Reduction Agency and one of the architects of ITAR restricting the export of U.S. satellites and components, now says the rules need a thorough overhaul because they are damaging U.S. industry with no corresponding benefit to U.S. national security. Garner, speaking at the Satellite 2007 industry conference, said those who helped update the ITAR regulations had no intention of placing almost all satellite systems and components on the State Department-controlled U.S. Munitions List of material to be considered equivalent to arms for export purposes. Garner said the ITAR rules today constitute a minefield for companies seeking licenses to deal with non-U.S. entities to export satellites or related components.11 Many believe that a clean-slate approach is needed to fix the fundamental disconnect between ITAR as it is being applied to space science research and the needs of the U.S. space science community as it endeavors to maintain world leadership. In short, the rules need to be changed.
Controlling critical space technology exports that would put the nation at risk is indisputably important. But equally important is to be competitive on the world market and to encourage cooperative scientific research when such commerce and research does not compromise critical technology. An export control regime and regulatory environment that protects critical military technologies and technical expertise while still allowing commerce and international scientific partnerships to flourish and the U.S. space industry to prosper and grow should be possible to implement. The ISS is an example of a cooperative space exploration program that benefits all partners.
The January 2009 NRC report Beyond ‘Fortress America’: National Security Controls on Science and Technology in a Globalized World best summarizes the arguments for why concerns about security require a complete revision of the nation’s export control regulations. The report states, “As currently structured, many of these controls undermine our national and homeland security and stifle American engagement in the global economy, and in science and technology.” Written by the Committee on Science, Security, and Prosperity of the NRC and co-chaired by Brent Scowcroft, president of the Scowcroft Group, and John Hennessey, president of Stanford University, the report calls on the new administration to revise export control policies promptly, by issuing an executive order that affirms “a strong presumption for openness.” The report goes on to say, “Economic competitiveness needs to be factored into export control decisions, and controls need to be reviewed annually and rescinded when they can no longer justified.” The panel concluded that the perpetuation of existing policies would be “a self-destructive strategy for obsolescence and declining economic competitiveness.”12
ENDNOTES
3. Benjamin Sutherland, “Why America Is Lost in Space,” Newsweek, January 31, 2009.
4. Air Force Research Laboratory and the U.S. Department of Commerce, Defense Industrial Base Assessment: U.S. Space Industry: Final Report (Washington, D.C.: Department of Commerce, 2007), http://www.bis.doc.gov/defenseindustrialbaseprograms/osies/defmarketresearchrpts/exportcontrolfinalreport08-31-07master___3---bis-net-link-version---101707-receipt-fromafrl.pdf.
6. Space Foundation, ITAR and the U.S. Space Industry (Colorado Springs: Space Foundation, 2007),
8. “ITAR and the U.S. Space Industry,” Milsat Magazine, November 2008.