Statute Authorizes Satellite Export Control Reform

January.03.2013

Today, the U.S. President signed legislation that will enable his Administration to return commercial satellites and related items to coverage by export controls for commercial “dual use” items. Since 1999, a statute has mandated that commercial satellites be controlled for export as if they are military systems. It is expected that this more congruous export control treatment of satellites will greatly benefit the U.S. satellite industry, its suppliers and related sectors. At the same time, a variety of uncertainties remain about the future of U.S. export controls as they relate to satellites and associated items.

Background

United States export control treatment of commercial communications satellites has been a controversial matter for several decades. As of the mid-1990s, the Commerce Department was generally responsible for administering export controls regarding satellites under the Export Administration Regulations (“EAR”). The EAR apply to goods, software and technology that are considered to be “dual use” – commercial items with military or intelligence relevance. Allegations emerged of unlawful technology transfers to China in connection with investigations of failed satellite launches in China. As a result, the Congress included in the National Defense Authorization Act for 1999 (“1999 NDAA”) provisions that prescribed movement of commercial satellites from the Export Administration Regulations to the International Traffic in Arms Regulations (“ITAR”). The ITAR govern export controls of intrinsically military goods, software, technology and services and are administered by the State Department.

The U.S. satellite industry has argued that regulation of commercial satellites under the ITAR is inappropriate since they are not military items and has needlessly undermined the satellite industry. The industry has highlighted, in particular, an adverse impact of the ITAR’s unwritten “see through” rule. The State Department interprets the ITAR to govern exports, reexports and retransfers of ITAR-controlled items even when they are incorporated into equipment systems manufactured abroad. Consequently, the U.S. government has advised that an ITAR license is needed for transfer of a French-made satellite by virtue of its incorporation of a U.S.-made transponder component. Under the EAR, the Commerce Department’s approach to regulation of equipment systems due to their incorporation of export controlled items is less far-reaching.

Legislative Reform

After intensive debate, the Congress included in the National Defense Authorization Act for 2013 (the “2013 NDAA”) language that repealed the 1999 provision mandating ITAR coverage of commercial satellites and “related items.”[1] Repeal of the 1999 provision is expected soon to lead to EAR, rather than ITAR, coverage of these equipment systems and related software and technology. But a variety of uncertainties remain.

As a threshold matter, it is unclear when the Administration will complete transfer of satellites and related items from the ITAR to the EAR. And the breadth of items that are to be transferred is not clear at a detailed level.

In addition, some ITAR-related restrictions will continue to apply to commercial satellites. The 2013 NDAA specifies that 1999 NDAA satellite requirements “shall continue to apply to satellites and related items that are subject to” the EAR. It is unclear how the Administration will implement this statutory requirement or the degree to which it will establish special EAR satellite controls as a discretionary matter.

Geographical Licensing Scope: The ITAR generally require a license for exports and reexports of ITAR-controlled items to nearly every country in the world. EAR license requirements, on the other hand, typically apply to exports and reexports to some countries but not others depending on the license requirement. The extent to which EAR satellite-related license requirements will apply to international destinations remains to be seen.

Embargoed Destinations: ITAR licenses ordinarily are not provided for exports and reexports to China and many other countries. The 2013 NDAA requires retention of these embargoes for satellite-related export even after a switch to EAR controls as to China and countries that have been identified as state sponsors of terrorism (currently, Cuba, Iran, North Korea, Sudan and Syria). The statutory embargoes apply to satellites and related items. The Administration will likely apply the embargoes mandated by the 2013 NDAA to most or all commercial satellites, satellite equipment and components, software and technology that are moved from the ITAR to the EAR, but the precise contours of the embargoes are uncertain moving forward.

Restrictions on Technical Assistance and Technical Data: Both the ITAR and EAR regulate exports and reexports of technology, so exports and reexports of technical data for development, production and use of satellites and related items will continue to be controlled for export. But the ITAR also regulate technical assistance regarding satellites and other controlled items (“defense services”). Furthermore, the ITAR authorization process for technology and technical assistance is awkward and time-consuming, involving State Department approval of written agreements between U.S. and non-U.S. persons involved in the transactions.

There are open questions about the extent to which the Administration will apply the EAR in their traditional, more streamlined form to satellite-related technology and whether there might be special EAR controls on satellite-related technical assistance. In this regard, it would appear that exports of satellites and related items will generally remain subject to a 1999 NDAA requirement that exporters establish U.S. government-approved “technology control plans” as a licensing condition.

Restrictions on Satellite Components and Parts: Another challenging dimension of the ITAR for the satellite and related industries has been the ITAR’s application to relatively low-level components and parts of satellites and subsystems (notwithstanding some special exemptions). A critical question is whether transfer of satellites and related items from the ITAR to the EAR will effectively decontrol substantial layers of satellite components and parts.

In-Country Retransfer Restraints: The ITAR normally require a new license when a person abroad wishes to retransfer within a country an item that was exported to that person under the ITAR. This is less often the case under the EAR. Whether the Administration will, under the EAR, liberalize in-country retransfers of satellites and related items is not yet known.

Apart from the ITAR-to-EAR changes authorized by the 2013 NDAA, makers of satellites and suppliers to satellite makers may benefit from a broader U.S. export control reform initiative that the Administration happens also to be pursuing at this time. As indicated above, however, even under the EAR, purported special national security sensitivities associated with satellites may result in more restrictive treatment for satellites and related items than would normally be the case.


[1] An important question is the scope of satellite “related items.” It seems likely that the Administration will continue to apply a definition of “related items” in the 1999 NDAA: “satellite fuel, ground support equipment, test equipment, payload adapter or interface hardware, replacement parts, and non-embedded solid propellant orbit transfer engines.”