The U.S. space industry currently faces dual threats; major reductions in federal aerospace spending and overly restrictive satellite technology export policies. If we continue on this path, without implementing the right reforms, our nation risks the scenario of a weakened space industrial base that is unable to fully meet U.S. national security needs or sustain our technological edge against foreign competitors.
We surveyed AIA members this year on the topic of export regulations and the message was clear: outdated export controls are hurting U.S. companies. Data supports this view. The U.S. held 73 percent of the worldwide share of satellite exports in 1995—this fell to a staggering 25 percent by 2005.
Today, U.S. law requires export agencies to still look at a nut, bolt, or screw for a commercial satellite and an anti-tank missile through the same regulatory prism.
Clearly, it’s time for a change.
This is an urgent call to our national leaders to bolster opportunities for satellite exports by modernizing the U.S. export control system. AIA’s recommendations center on the creation of market conditions that would allow U.S. firms to compete and win their fair share of international commercial space business—nothing more, nothing less.
For our national policymakers, promotion of satellite exports should rank among the most viable options to aid our economy, reinforcing U.S. preeminence in space and ensuring our aerospace industrial base remains second to none.
— Marion C. Blakey, President and Chief Executive Officer, AIA
The Foundation
More than a dozen years ago, Section 1513(a) of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 shifted export control jurisdiction of all satellites— including commercial communications satellites and their parts and components—from the Commerce Department, the agency responsible for licensing “dual-use” exports, to the State Department, the agency that monitors the licensing of munitions exports. The Section 1513(a) restrictions for satellite exports were put in place after the 1998 Cox Commission investigation that addressed concerns about Chinese access to U.S. high technology.
The shift, intended to protect sensitive space technologies and preserve U.S. preeminence, has since contributed to the loss of U.S. commercial satellite market share and fostered the competitiveness and capabilities of U.S. competitors abroad. Simply put, we have legislated away our nation’s dominance in space.
The Industry Speaks: 2011 AIA Member Survey
In 2011, AIA conducted a survey of its membership to assess the space industry’s most recent concerns with current export regulations. Twenty member companies provided detailed responses to the survey, and this resulting report was reviewed and approved by AIA’s Space and International Councils. These AIA member firms that provided detailed survey responses are a very comprehensive group accounting for over 75 percent of total 2010 sales by U.S. satellite and component manufacturers as identified by Space News’ “Top 50 Space Industry Manufacturing and Services 2011 Report”—totaling more than $30 billion in 2010 sales. Key results include:
– More than 90 percent of respondents indicated a connection between export controls and eroding space industrial base capabilities. Respondents reported that U.S. export controls stand as barriers to domestic companies and create an advantage for foreign competitors
– A significant number of respondents favor a major overhaul of U.S. export controls. Section 1248 of the Fiscal Year 2010 National Defense Authorization Act (NDAA) tasked the Departments of Defense and State with considering the prospect of moving appropriate space components from the United States Munitions List (USML) to the Commerce Control List (CCL). More than 70 percent of AIA survey respondents voiced concern that the Section 1248 report would help their firms only if it resulted in Congress authorizing the President to make substantial revisions to USML Category XV (space vehicles)
– 100 percent of respondents said that current export control restrictions have at least some adverse impact on their businesses
– Respondents noted that current policies have created the unintended consequence of fueling foreign competition for U.S.-dominated market share. The result: a dampening of sales opportunities to boost U.S. space technology innovation
– More than 70 percent of respondents blamed ITAR for lost sales, with many small businesses characterizing losses as “significant.”
– The U.S. government should expeditiously complete and release its review of space systems and components under consideration for removal from the United States Munitions List (USML)
– Congress should return authority to the administration for determining the export control jurisdiction of space system technologies
– The U.S. government should exercise this renewed authority to remove low/no risk technologies from the USML and designate them for inclusion on the CCL, which allows for greater flexibility while preserving the appropriate technology transfer safeguards
AIA Recommendation: Promote U.S. Space Industry Exports
– Selected space systems should receive support under the administration’s National Export Initiative, which set the goal of doubling U.S. exports over the next five years
– The Export-Import Bank should develop a greater focus on support for the U.S. satellite manufacturing sector. The use of credit guarantees should be considered for domestic projects if international competitors are backed by government guarantees
– Additional resources should be provided for the Commerce Department to develop and support space export strategies. With adequate funding, the Commerce Department can help level the playing field for U.S. firms trying to compete and win in the global marketplace
– International military sales have for decades strengthened the U.S. aerospace industry and enabled allies to cost-effectively acquire new capabilities. The Defense Department should encourage our allies to acquire U.S.-built spacecraft and systems. See the Appendix at the close of this article.
The U.S. space industry currently faces major funding reductions from its core customer – the federal government–and at the same time current export policies limit it from conducting effective commercial business abroad. As small businesses and suppliers respond to this scenario by closing their doors, without reform, a weakened U.S. space industrial base may be unable to meet national security needs or sustain its technological edge against international competitors.
The details of the national security risks posed by inappropriate export controls and the absence of export-focused trade policies on the strength and competitiveness of the U.S. space sector will now be offered. It is AIA’s position that addressing both areas will enhance space trade among U.S. allies and lead to a stronger U.S. space industry and supplier base that is better equipped to meet the challenges of budget-constrained government customers.
Representing more than 90 percent of the U.S. aerospace industry, AIA works to educate government decision makers regarding issues critical to the country’s economic strength, technological competitiveness and defense readiness.
Prepared by AIA’s Space and International Councils, this report makes recommendations and includes findings from an AIA survey that provides new insight regarding the impact of current export restrictions on space industry manufacturers of all sizes.
A multitude of studies have previously provided findings and recommendations on ways to improve the U.S. space industry’s competitiveness. (A list of relevant studies and a brief summary of each can be found later in this presentation.)
In particular, a February 2008 study from the Center for Strategic and International Studies (CSIS) found that current export control policies adversely impact U.S. firms —especially in the 2nd and 3rd tier—and their ability to compete for foreign space business.
An August 2011 Futron analysis of the space industry in 10 countries stated: “Only the United States has shown four straight years of competitiveness declines… By contrast, Russia, China and Japan have improved their own space competitiveness by 12 percent, 27 percent and 45 percent, respectively.”2
Stable domestic federal budgets are critical to the U.S. space industry—the export market is simply not large enough to assure its health. Without stabilizing government space budgets, developing effective export promotion strategies and modernizing the U.S. export control system, the United States faces the real and daunting possibility of losing its preeminence in space. The goal of this report is to convey the urgency to policymakers about the need for updated export policies that we believe will strengthen the U.S. space industrial base and enhance national security.
U.S. defense technology can be a force multiplier on the battlefield–providing our troops with an edge over their opponents. Effective export controls can sharpen that edge. Export controls keep our most advanced technologies, weapons and equipment out of the hands of our adversaries. Unfortunately, the current U.S. export control system is not optimized to protect sensitive technologies while also maximizing the economic and national security benefits of international trade.
International technology trade helps U.S. aerospace and defense companies create jobs and fuel economic growth. The industry supports more than one million American jobs and according to AIA estimates, created a $51.2 billion aerospace trade surplus in 2010.
Global trade also strengthens U.S. alliances and improves our security posture by providing allies and friendly nations with the capabilities they need to work jointly or unilaterally in support of shared security goals.
The current U.S. export control system was designed decades ago to meet the demands of a Cold War-era, bipolar security environment. According to a 2009 report, Beyond Fortress America, prepared by the National Research Council of the National Academies, the U.S. export control system has not been updated to reflect post-Cold War conditions. The current system closes off business opportunities with foreign customers and increases costs for U.S. industry and small businesses. This ultimately weakens the industrial base and its ability to support the nation’s security and economic interests.
Worldwide Share of Satellite Exports 1995–2005
These challenges are particularly acute in the space sector. Numerous studies have highlighted the negative impact of excessive export controls on the American space industrial base. These studies focus on the impact of Section 1513(a) of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999. This legislation shifted export control jurisdiction of all satellites–including commercial communications satellites and their parts and components–from the Commerce Department, the agency responsible for licensing “dual-use” exports, to the State Department, the agency that monitors the licensing of munitions exports through the U.S. Munitions List (USML).4 This move placed satellites under the International Traffic in Arms Regulations (ITAR), government regulations that control the export of defense-related articles. The Section 1513(a) restrictions for satellites export were put in place after the 1998 Cox Commission investigation of Chinese access to high technology.
While the move was intended to protect sensitive space technologies and preserve American preeminence, what resulted was a widespread loss of commercial satellite market share among U.S. manufacturers as illustrated by a 2008 report by CSIS (see the chart on this page). During a 2009 hearing before the House Armed Services Committee, General Kevin Chilton, former commander of U.S. Strategic Command and NASA astronaut stated, “I remain concerned that our own civil and commercial space enterprise, which is essential to the military space industrial base, may be unnecessarily constrained by export control legislation and regulation.”5
Other cases of a weakening space industrial base can be found by reviewing the Defense Production Act (DPA) Title III Program (Title III), a program that provides funding streams in order to preserve domestic military supply chain capability. It is worrisome to note that at least 13 out of 20 current DPA Title III projects are aimed at supply chain materials necessary for the U.S. space program.7 Current Title III programs related to the space sector include: readout integrated circuits that support sensitive U.S. surveillance satellites; radiation hardened electronics that are used for missile defense and space applications; and Lithium Ion batteries required for satellite power.8
Supporting The Industrial Base
The U.S. space and defense industrial base—a collection of specialized manufacturing firms and innovative small businesses—is responsible for the design and development of space systems and components for commercial customers and the U.S. government. These companies are unique: their major customers are agencies of the U.S. government such as NASA, the Defense Department and those in the intelligence community. With relatively few opportunities to compete on contracts that can take years to complete, the industry’s high-stakes business development paradigm has been referred to as “betting the ranch on winning in Vegas.”10
One major barrier to U.S. export competitiveness is the presence of all satellites and related components (however innocuous) on the USML, which forces industry and its suppliers to rely more and more on diminishing domestic federal programs in order to remain alive. Foreign competitors have used our own policies against us by marketing their satellites as devoid of U.S. parts and components – “ITAR Free.” Meanwhile, efforts to promote exports within the Obama administration, such as the National Export Initiative, are not adequately optimized to support exports of commercial U.S. satellite technology.
AIA Survey Results
The 2011 AIA member survey referenced in the Executive Summary offers new insights about the challenges associated with the current export regime. The survey provides a valuable snapshot regarding the cost of the status quo for the industry, U.S. jobs and our security and economic interests.
Do you see a connection between export controls and space industrial base capabilities?
More than 90 percent of respondents saw some connection between export controls and eroding space industrial base capabilities. Respondents reported that export controls present barriers to U.S. companies, which our foreign competitors do not face.
One small U.S. space business stated that due to ITAR barriers, their “market share and profitability has been reduced significantly.” Another firm cited that “ITAR controls are hurting the competitiveness of U.S. suppliers in areas where there is similar technology available in other parts of the world.” One business cited ITAR controls as restricting firms from selling to international satellite builders and also added that foreign market protection exacerbates the challenge.
Their statements reflect a threat to the profitability and investment environment that encourages U.S. companies to research and develop new capabilities.
The Fisecal Yar 2010 National Defense Authorization Act (NDAA)—signed into law in 2009—included Section 1248, which tasked the State Department and the Defense Department to evaluate the national security risks of removing space components from the USML. An interim report was released in 2011.
More than 70 percent of respondents voiced concern that the 1248 report would only help if it results in Congress authorizing the President to make substantial revisions with the USML Category XV (space vehicles). Among space system suppliers, the predominant interest was to address inappropriate restrictions on “specifically designed or modified systems, or subsystems, components, parts, and accessories.”
The current export regime results in firms treating small components with the same level of scrutiny as the completed full assembly of a space system. For example, the full extent of export control scrutiny must be applied to items such as special fasteners, sheet metal brackets, composite molds and other components. Although unique for space, these items are not critical technologies and their export does not warrant USML level pre-and post-shipment compliance measures.
Do current ITAR regulations adversely impact your business?
All respondents mentioned that current export control restrictions had some adverse impact on their businesses.
ITAR licenses, record keeping requirements, and increased potential for delays magnify the risk and cost of competition for U.S. businesses. Ultimately, these circumstances damage the reputation of U.S. industry, and reduce predictability and profitability for the U.S. exporter, thus threatening the health of the domestic space industrial base.
Another firm stated, “The transfer of commercial communications satellite components to the CCL would provide welcome relief to the U.S. commercial satellite sector and increase our firm’s competitiveness. Such a shift would reduce our European competitors’ significant marketing advantage of being able to offer ‘ITAR-Free’ satellites free of U.S. components.”
A variety of firms cited instances where, due to ITAR satellite, component restrictions and the cost of compliance, they made the decision to avoid certain non-U.S. markets.
Do you see a connection between foreign competition and the current state of U.S. space industrial base capabilities?
One respondent firm noted that in the past 10 years, the European Space Agency (ESA) has attempted to develop a European unfurlable mesh antenna reflector. While the effort has yet to be successful, the motivation for ESA still exists as long as the United States restricts exports of its own mesh antenna technology.
Has your company lost sales due to ITAR-free marketing by foreign competitors? Could you quantify the value of the lost sale?
More than 70 percent of respondents described lost sales due to ITAR. Specific sales opportunities in Europe, Canada, Asia and other parts of the world were described. Many small businesses cited a “significant” loss of sales.
One small firm attributed annual sales losses of $5 million annually to the current export control regime. While other companies found the losses difficult to quantify, most agreed that the current export regime was hurting their competitive posture. They also stated that they are forced to dedicate significant resources to managing ITAR compliance that would otherwise go toward reinvestment.
Another mid-size firm remarked that the ITAR-free positioning of potential customers in Europe and Israel for their components results in lost revenue of between $500,000 and $2 million for every ITAR-free satellite manufactured. Their customers are also beginning to identify ITAR control in writing as a negative consideration in the bid and proposal process.
One respondent specifically referenced a lost sale opportunity of satellite components—non-sensitive components available on the global market – where ITAR delays and restrictions resulted in a foreign firm deciding to do business with a non-U.S. competitor.
Revise Satellite Export Controls
Instead of preventing other countries from developing space capabilities, barriers to export for U.S. satellite products have prompted numerous countries to create indigenous space capabilities and leverage their growing market share to support research, development and innovation. As U.S. global market share declines, many domestic companies – particularly second and third-tier suppliers – are increasingly reliant on sales to the U.S. government, or are considering abandoning their space business altogether. In the absence of a healthy, cutting-edge, space industrial base in the United States, our government may be forced to rely on non-U.S. suppliers for key space system components.
Without meaningful steps to stabilize government space budgets, modernize the export control system generally and enhance space trade among our allies, the United States faces a real and daunting possibility of losing its preeminence in space, along with its ability to compete in the global space industry. In order to prevent the loss of space industrial capabilities needed for U.S. security, AIA urges the Departments of Defense and State to complete expeditiously a final response to the National Defense Authorization Act’s Section 1248 that directs a review of moving satellite and space-related items off the USML.
AIA strongly urges Congress to pass legislation that would return discretion to the President for the removal of satellites and related components from the USML—subject to restrictions, Congressional oversight and other measures appropriate for safeguarding U.S. national security.
AIA Recommendations
– Promptly complete and release the U.S. government review of the space systems and components considered for removal from the USML.
– Congress should return authority to the President for determining the appropriate U.S. agency for export control jurisdiction over satellite and space technologies.
– The U.S. government should use this renewed authority to review and approve the movement of low/no-risk technologies from the USML to the Commerce Control List (CCL). The CCL, maintained by the U.S. Commerce Department’s Bureau of Industry and Security, is the more appropriate regulator for low-risk commercial technology exports.
While the Obama administration’s 2010 National Space Policy recognizes the importance of international space collaboration, it lacks a focus on the space and satellite industries that contribute to an “increased transparency and stability among nations and provide a vital communications path for avoiding potential conflicts.”13
AIA believes that a stronger partnership between the industry and government would create new opportunities for U.S. exporters. During an AIA-sponsored government and industry forum in 2011, one of the most repeated requests from industry was for reform of the U.S. export control system. There were also calls from industry for the U.S. government to advocate more aggressively in support of American space industry exports, toward the goal of a level playing field in the global marketplace.
International competitors today can count on government resources and advocacy for critical business pursuits. In 2010, the French-Italian firm Thales Alenia Space won a $2 billion contract to build more than 60 satellites for U.S.-based Iridium after aggressive action from the French export credit agency, COFACE. COFACE agreed to cover 95 percent of a $1.8 billion facility that would ensure most of the financing for the project.14 It was reported that because the U.S. manufacturer competing against Thales was technically making a domestic sale, it was ineligible for U.S. Export-Import Bank credit guarantees.
As a bulwark against foreign government influence, some in industry have advocated the development of a U.S. government-wide strategic plan for federal export promotion and export financing programs for space systems. This type of plan would encourage international space cooperation in a way that sustains U.S. market leadership while giving international customers access to the best technology at the best available price.
Additional cooperation of this type can support a robust U.S. space industrial base, strengthen the capacity of our global partners and is ultimately a win-win for both the United States and its allies.
AIA Recommendations
– Selected space systems should receive attention under the administration’s National Export Initiative, which set the goal of doubling U.S. exports over the next five years.
– The Export-Import Bank should be activated to support more effectively the U.S. space manufacturing sector. The use of credit guarantees should be considered for domestic projects if international competitors are backed by government guarantees.
– Additional resources should be provided for the Commerce Department. With adequate funding, the Commerce Department can help level the playing field with additional support to U.S. firms trying to compete and win in the global marketplace.
– International military sales have for decades strengthened the U.S. aerospace industry and enabled allies to acquire new capabilities cost-effectively.
– The U.S. Defense Department should encourage our allies to utilize U.S. spacecraft and systems.
Endnotes
1http://integrator.hanscom.af.mil/2009/July/07162009/07162009.htm
2http://www.futron.com/SCI_2011.xml
3http://csis.org/files/media/csis/pubs/021908_csis_spaceindustryitar_final.pdf
4http://www.ogc.doc.gov/ogc/contracts/cld/hi/105-261.html
5http://www.spacenews.com/resource-center/sn_pdfs/SPN_20090323_Mar_2009.pdf
6http://www.nro.gov/news/articles/2010/2010-02.pdf
7http://www.acq.osd.mil/ott/dpatitle3/projects.htm
8http://www.acq.osd.mil/ott/dpatitle3/projects/bp.htm
9http://www.defense.gov/dodcmsshare/newsphoto/2010-06/hires_100617-N-0696M-051.jpg
10http://www.boozallen.com/media/file/80445.pdf
11http://www.stratcom.mil/speeches/2011/67House_ArmedServices_Subcommittee_Strategic_Forces_Testimony/
12http://www.breitbart.com/article.php?id=D9OCEPTO2&show_article=1
13National Space Policy of the United States of America,June 28, 2010, p. 1 http://www.whitehouse.gov/sites/default/files/national_space_policy_6-28-10.pdf
14http://www.aviationweek.com/aw/jsp_includes/articlePrint.jsp?storyID=news/awst/2010/06/07/AW_06_07_2010_p34-231779.xml&headLine=French%20Guarantee%20Assures%20Iridium%20Next%20Future
15http://democrats.foreignaffairs.house.gov/press_display.asp?id=888
About the author
Mike Conschafter is Director, Space Systems at the Aerospace Industries Association (AIA). In this capacity, Mike coordinates space policy issues related to the Department of Defense, U.S. Air Force, Missile Defense Agency and other government organizations.
Before joining AIA, Mike advised U.S. Congressman Doc Hastings (R-WA) on defense, science, and energy affairs. In addition to his role as a policy advisor, he managed security and science appropriations for Mr. Hastings’ district in Washington state where he was instrumental in securing funding for critical DOD, Department of Energy, Department of Homeland Security and National Science Foundation programs. Mike also worked on issues related to DOE’s Hanford Site, the Pacific Northwest National Laboratory, and organized an annual series of briefings on DOE and National Nuclear Security Administration programs. Prior to his work in the House of Representatives, Mike served in the office of U.S. Senator Lindsey O. Graham (R-SC). He supported the senator’s commitment to defense and science issues, specifically related to DOE’s Savannah River National Laboratory and other state research organizations. During his tenure Mike led the creation of the Senate Hydrogen and Fuel Cell Caucus.
Mike holds a B.A. in history and political science from the University of North Carolina at Chapel Hill and completed post-graduate coursework at the National Defense University at Ft. McNair.
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Satellite Export Reform: Myths & Facts
MYTH: A recent uptick in U.S. satellite manufacturing revenue is a trend that clearly shows that the current export control system does not need to be changed.
FACT: The U.S. space industry—from top tier firms to suppliers—remains competitively disadvantaged by the current satellite export regime. The overall trend is clear—the United States held 73 percent of the worldwide share of satellite exports in 1995—this fell to a staggering 25 percent by 2005. This study and a myriad of others have shown that the current system is not optimized to allow U.S. firms to compete against their international counterparts. A 2011 review of the U.S. space industry by Futron clearly showed that the United States is falling behind in space competitiveness. As the space industry's main customer—the U.S. government—reassesses its spending priorities, many space and defense firms will require stronger international and commercial sales in order to survive. It is more important than ever for national leaders to address export control modernization.
MYTH: Removing satellites and related components from the USML will harm U.S. national security.
FACT: Sensitive satellite and launch technologies will certainly need to remain under strict export control of the USML. However, there are a variety of low/no risk commercial satellite systems and components—many of which are already available on the international market—that should be considered for control under the less restrictive CCL. As the National Defense Authorization Act for Fiscal Year 1999 moved all satellites and components to the USML, even commercial communications satellites and widely available subcomponents remain under munitions list export control. Preventing export of nonsensitive technologies actually results in damage to the U.S. industrial base, making our small businesses less competitive and potentially less able to meet the national security needs of the U.S. government. Clearly, we need a more nuanced export system for today's space technologies.
MYTH: Why modernize export controls for satellites now? The Europeans have developed their own capabilities and would not buy U.S. space products even if export controls were changed.
FACT: There are a variety of U.S. manufacturers that currently do business with European countries. These firms have unequivocally stated that the correct changes to the current export control system would benefit their business in Europe. Other companies are looking elsewhere for business—especially in the Middle East, where many countries' budgets remain stable and interest in technology is increasing. In South America, the Chinese have been reported to be aggressively pursuing satellite sales to Brazil, a country in which U.S. companies lack a substantial presence.
MYTH: Why should we be concerned about satellite export control modernization? Won't it just help large companies who win billions of dollars in U.S. government contracts anyway?
FACT: The large and small U.S. companies that comprise our space and defense industrial base are critical to U.S. national and economic security. Without these companies, we would not be able to lead the world in technology and would be unable to produce the systems needed to provide our warfighters with an edge on the battlefield. It is imperative that we protect sensitive technology from export, but it is similarly important for our security that we provide these firms with the tools needed to win export business against their foreign competitors. Export control modernization could arguably help U.S. second- and third-tier suppliers the most. These small businesses often lack the resources to manage the complicated and challenging export control regime. This causes many small firms to make the decision to stay out of the space market entirely or can cause significant sales losses among small firms that remain in space markets. A reinvigorated export control system would have immense benefits for the U.S. space industry, especially second- and third-tier small businesses.