Here’s a message from the U.S. government to satellite owners, operators and builders:

If you think the dread ITAR dragon — which for 15 years allegedly laid waste to exports of U.S. satellite hardware and services — was slain in November 2014, you’re wrong.

ITAR was partially defanged when the U.S. Congress agreed to transfer many satellite exports from the State Department to the Commerce Department, which is friendlier to exporters.

But ITAR — the International Traffic in Arms Regulations — remains wholly unchanged with respect to China, and little changed as it relates to launch vehicles and satellites preparing for integration onto rockets.

And the export controls now managed by the Commerce Department are still able to bite, even if they are not stamped ITAR. Teams with guns and badges knocking at your door may be in different uniform, but they still knock.

On the other end of the spectrum, satellite hardware builders, like animals scared to move beyond a cage’s dimensions even after the cage is removed, are “wildly over-regulating” themselves since the ITAR reform, according to the Commerce Department.

Some 75 percent of satellite export-license requests filed since late 2014 have been unnecessary, according to Commerce findings. No licenses were needed.

These were some of the conclusions drawn from a March 9 panel discussion at Satellite 2016, held in National Harbor, Maryland.


Moderator
John Ordway: Partner at Berliner, Corcoran & Rowe LLC

Panelists
Anthony Dearth: Director of the licensing at the U.S. State Department’s directorate of defense trade controls licensing
Kevin Wolf: Assistant secretary at the U.S. Commerce Department’s Export Administration Bureau of Industry and Security
Melissa Farrell: Vice president for commercial programs at Stellar Solutions Aerospace, a space engineering consultancy
Jennifer Hindin: Partner at law firm Wiley Rein LLP


The Regulatory Burdens of Export Controls on Commercial Space

Anthony Dearth

“In 2013 we had more than 5,000 Category 15 [satellite-related] licenses and in 2015 we had less than 900. It has created a tremendous benefit for us, especially in the area of commercial communications satellites, TAAs [Technology Assistance Agreements] for minor parts and components. We hope that the shifting of that burden has been felt in the commercial satellite industry.”

Kevin Wolf

With few exceptions, just about everything in the commercial satellite spacecraft, and science satellites moved to Commerce. The relevance of that move is that under our regulations we have various license exemptions that allow for the unlicensed export of items to allied countries.

If a commercial satellite component is no longer State controlled, it is subject to Commerce regulations, and except for some radiation-hardened components that means it can be exported to any of 36 countries — NATO and other close allies — without licenses. A license is required for the rest of the world.

The embargoes with respect to exports and re-exports to China and other countries subject to arms embargoes remain in active and aggressive effect.

The total value of exports of physical items in the last 18 months or so — from October 2014 to January 2016 — that moved over [to Commerce] has been $1.3 billion.

Of this $1.3 billion that used to be State controlled, 77 percent went out under license, 12 percent went out under license exemptions and 7 percent had no license required at all, which were generally shipments to Canada. A small number went to governments.

The data point that is most significant about that 77 percent of the $1.3 billion that was exported under a Commerce license, is that 75 percent of those licenses were unnecessary.

Another way of saying that is that industry, so far, is still wildly over-regulating itself.

We’ve created a significant license exception for trade with the EU and other friendly countries such as Australia and Japan and South Korea, and companies are still applying for licenses.

They were beaten for 15 years by attorneys and compliance officers who said: If you ever ship anything related to satellites without a license, or speak with a foreigner about satellites, you will go to jail. Those habits are hard to break.

Companies will get more comfortable with the exceptions. The regulatory burdens, both for government and industry, are reduced. I have received almost no complaints about satellite exports from the day-to-day administration of a regulation that took effect.

JOHN ORDWAY: So you see data from the Automated Export System on the export of widgets, but not necessarily the export of services?

Kevin Wolf: We regulate the flow of the technology and the hardware. But the act of providing assistance isn’t controlled, other than the integration into a rocket, which remains ITAR-controlled.

The other thing we don’t have data on is when companies use the exceptions to engage in intangible transfers with respect to allied countries. So a German, a Swede and an American are sitting in a conference room in England to discuss a solution with respect to a satellite and that would be covered by an STA [Strategic Trade Authorization]. So long as they agree to keep the discussion by and among and between themselves and not outside the 36, that conversation can occur without the need for a license.

Under the old system, they would have needed to stop the discussion and gone back to State and gotten authorization. Under the new system, they can very quickly move to having those discussions on commercial satellites. I have told companies that this is one of the biggest benefits of the exceptions. It allows for a very quick response on troubleshooting and development.

JOHN ORDWAY:  For those not familiar, these 36 countries include basically NATO and the EU and certain major allies. For example, Argentina is in there, Pakistan is not.

One of the things that the widget vendors found is that when they used the STA, the Office of Export Enforcement came knocking on their door, which is a little scary. What was that about?

Kevin Wolf: The theory is that, in exchange for not having to apply for a license, you can have a license exception. But we periodically do spot checks of the data and the export records to be sure companies were complying with [the 36-nation restriction].

We always did checks for items exported under a license. Now we periodically check on those who’ve used the exception, to be sure they understand how the exception works, and how they are complying with it.

I don’t have exact numbers on the visits we have done — we have a whole office that does it — but in the past couple of years the compliance rate has been very high.

JOHN ORDWAY:  It’s still a little scary, because your guys have guns and badges.

Kevin Wolf: Well, the point of the rules is to enforce the rules. If they don’t want that to occur, the only answer is not to export.

JOHN ORDWAY : Or to use a license.

Kevin Wolf: We still do checks of companies with licenses. The myth created around STA is that it will make it more likely that you will receive a visit in the middle of the night with a federal agent at your door. The reality is that if you’re thinking, ‘I’ll apply for a license in order to avoid an audit by the government,’ that’s false thinking. We do checks either way.

We have an enforcement side of 105 special agents who have arrest authority, and guns and badges. They are experts at export control. All they do is investigate potential export control violations.

Anthony Dearth:  We’ve seen a significant drop in the number of licenses. We’re trying to figure out whether these companies have decided they understand the rules but decided wrong, or have they had a loss of business because of market factors?

Melissa Farrell: We are an engineering services and program management consultancy. We work with commercial and government customers. We provide technical assistance, which is not as clear as we would like in the reformed regulations.

JOHN ORDWAY:  How has the change in regulations gone for Stellar?

Melissa Farrell: As a small business, one of the challenges is that, as expected when you have new regulations, there will be a learning curve. It’s been substantial and not an easy transition. We hope that as we come up that curve it will be easier going forward. But it has frankly been an expensive move.

JOHN ORDWAY:  Is there a feeling that the reforms have not met their goal?

Melissa Farrell: Certainly for hardware we see substantial improvements. I do see some of our customers and suppliers struggling to understand the new regulations, which are very specific and hard to interpret. Much of the technology, especially as it applies to commercial satellites, exists globally and therefore the regulations should be improved, relaxed or eliminated altogether.

With Western allies the improvements are pretty clear. But when we look at the rest of the world, we find challenges. We’re talking about truly commercial technologies that are available globally — and that’s true of 95 percent of what goes into a comsat. The fact that there’s any restriction is somewhat puzzling.

JOHN ORDWAY:  Is this just a matter of getting over the learning curve? Boeing, for example, has 200 people who do export control full time.

Melissa Farrell: We have one person, part-time, who’s very busy. For us, in terms of technical assistance, there has been improvement but it’s a first step along the road and we’d like to see further improvements.

Kevin Wolf: Part of my purpose here is to listen to suggestions. What are your suggestions?

Melissa Farrell: We want to see continued evaluation of where we can eliminate restrictions on truly commercial technologies — globally, not just to selected Western allies. We understand the sensitivity to China and places we can’t do business. But there is still a lot of the world we work with where the restrictions are in place on items available from many other sources outside the U.S.

Our business has matured to the point where market forces and competitive concerns should be regulating the sharing of information for globally available technology — not the U.S. government.

JOHN ORDWAY:  To the extent that allied nations have these technologies and operate under different rules, does that have a competitive impact on Stellar? I don’t think there was any intent in the reforms to make U.S. businesses less competitive.

Melissa Farrell: I don’t know that we feel less competitive. We do feel that there is a burden associated with interpreting and correctly applying the requirements, particularly as they pertain to technical assistance.

There is a challenge in having appropriate foresight to anticipate issues. We can claim an STA as it applies to a particular project. But what if an anomaly arises and we end up needing to advise a customer on something at the component level that is process or technologyrestricted? We may be caught out and we may not have the license to be able to provide that service.

It’s hard to anticipate all those eventualities. We need to be able to provide not just the obvious up-front interface technical advice, but also the what-if-an-anomaly-happens advice.

JOHN ORDWAY:  So some sort of broad license, something quick when a component anomaly comes up in the commercial satellite industry — that would help?

Melissa Farrell: Exactly.

Kevin Wolf: These are companies or activities or individuals you hadn’t thought of at the time of the application?

JOHN ORDWAY:  We thought of it at the time but we didn’t think it was going to come up as an anomaly.

Melissa Farrell: Yes. We can think of the broad class of activities we might need to support anomaly investigations. But when you get down into trying to follow the flow chart…

Kevin Wolf: How would you have done what you’ve just described prior to the reform effort?

Melissa Farrell: Prior to the reform effort we would generally be invoking licenses that allowed some level of anomaly investigation for every one of our customers and their key suppliers. We would either be a signatory to their license, or we would procure our own.

Anthony Dearth:  If it was an in-flight anomaly with a risk of endangering the spacecraft, we — the government — would generally get a license in place within 48 hours to support that activity. We did this on multiple occasions.

JOHN ORDWAY:  What we’re talking about here is terrestrial anomalies, no risk of injury.

Kevin Wolf: Under the license exception, the STA, keep in mind it is optional. In many circumstances it may be easier for a company to come in and describe a whole program of potential end-users, and the types of technology to be shared, and then we could issue not a blanket authorization, but a broad authorization. That’s perfectly acceptable.

Anything that you could have done under the State system in terms of a broad license or authorization can be replicated under the Commerce system, with far fewer burdens. But if there is a transaction or activity that is easier under an exception, that is just as available. So we have created more options for more companies.

JOHN ORDWAY:  The problem is that a lot of the growth in satellite communications has been outside the 36, such as Qatar, Oman, UAE, countries like that. That’s part of where we’re running into this problem.

Kevin Wolf: For that I would say: Speak to Congress. In terms of the global elimination of things that are available, neither Tony [Dearth] nor I have the authority legally to do that.

Remember where we started, with a statutory requirement in the late 1990s. Congress required that all commercial satellites be ITAR-controlled, requiring a license everywhere, all the time, all destinations, all activities, and all services thereto. So everything required a license, everywhere and all the time.

We heard from industry over the last 15 years: The requirement is killing us because it’s tainting our products. They require a license for items that don’t otherwise require a license. If you take one U.S.-origin component and put it inside a foreign- made item, then forever after that foreign-made item is subject to State Department regulations; Please stop this.

So we worked with our friends at the Defense Department and the congressional staffs to get that requirement removed because the existing State Department controls were devastating the U.S. satellite industrial base.

To their credit, Congress agreed, with a couple of conditions. One of the legal conditions was that, whatever you do in reducing the licensing requirement, the embargo on China and a handful of other countries — a total of 18 or 19 countries — remains the same. That is, no U.S.-origin content, regardless of significance, regardless of whether it’s incorporated into a foreign-made item, can go to China or one of the other countries of concern.

We’re basically cool with NATO and the other friendly allies, but we still want government visibility into trade with the rest of the world, to have insight into potential diversion of satellite technology for other applications.

Hence the remaining license requirements for the middle chunk of the world and the removal of pretty much all license requirements for the NATO-plus allies. And as Tony mentioned, that has resulted in an 80-percent reduction in the volume of licenses.

JOHN ORDWAY:  What about a license exception for comsats?

Kevin Wolf: That’s never going to happen.

JOHN ORDWAY:  I don’t mean no license, but an exception could include nations we trust with satellite technology that aren’t necessarily within the 36 because they have not signed up to all these multilateral regimes. It doesn’t mean they are bad guys.

Kevin Wolf: That is something for the next administration to work with Congress on. I don’t know if everybody in the administration would agree with that for the rest of the world, and even if we did, the reaction from Congress would be swift and adverse, saying: That wasn’t the deal. That would require a massive amount of work, and would be a heavy lift. Even at the beginning of an administration that would be a heavy lift because not all countries are equal. But keep trying.

JOHN ORDWAY:  Jennifer, you represent satellite operators, both domestic and foreign. What is their perspective?

Jennifer Hindin: As a regulatory lawyer my sweet spot is FCC spectrum issues for license to launch and operate satellites. That gives me an opportunity to poll my clients, to give feedback to the government on how these satellite operators perceive export-control reforms.

There are established domestic FSS operators, an emerging small satellite community and then there are the foreign operators.

The reforms most directly affected the component manufacturers who were trying to export a widget outside the United States. The operator is more of a liaison between the manufacturer of the component parts and even the launch providers.

What I have learned is that many of their executives, who don’t live in the regulatory/legal world, have this belief that ITAR no longer applies to satellites, that it’s a great get out of jail free card. And of course it’s not. So they needed high-level education that while there was a lessening of the burdens of licensing requirements, there are export control regulations that apply.

Melissa [Farrell] alluded to some of this. Folks do find there is definitely a greater burden for specific projects, the record keeping, the oversight, the mindfulness of trying to learn new definitions and how they apply, to look at components and understand going into a meeting that it’s OK to talk about the solar panels, but I can’t start talking about ion propulsion without taking a look at what foreign nationals are in the room. Maybe they’re covered by the STA exception, but maybe they’re not.

Folks don’t want to go to jail. They want to get it right. There was a bit of a tendency early on to use belt and suspenders, to apply for the STA, let’s be safe in the event we’re not covered by one of the exceptions.

JOHN ORDWAY:  Is there a sense that once they get over the hump, things will be better?

Jennifer Hindin: Right now there is still uncertainty as they try to understand the granular details. It’s coming but it’s not there yet.

The smallsat industry people almost manufacture their satellites in a back room. For them, the Chinese launch comes up. They understand the national security reasons with China but they hope for reform in that area. It’s a cost-conscious industry and they see competing companies based out of the United Kingdom that can take advantage of cheaper Chinese launches.

Kevin Wolf: I realize it requires effort to go through and determine whether your component is one of the 16 components [still listed in revised Category 15 regulations]. But my belief, and I think the data bears this out, is that in the aggregate the elimination of the regulatory burdens reduces the overall regulatory burden while still preserving the objective in export control, which is national security and foreign policy.

It’s a perpetual tradeoff. You can have a system that regulates everything, everywhere, all the time, always and in one sense that’s easy because whatever you do, get a license. But we saw over 15 years that was having a devastating impact.

We can’t go to a system where we just de-control everything because there are reasons for the controls. So inevitably you are somewhere in the middle.

Our goal is to get companies over the hump of figuring out the new rules. To the extent there are things that can be fixed, we have a long list of items that, probably by the end of the year, we’ll have as a draft regulation for the next administration to update and refresh of the current rules.

Melissa Farrell: I’m glad there is an eye to the future to continuing to look at this following constructive feedback from industry. This is a positive first step but there is certainly, from our perspective, a lot of room for improvement.

What I struggle with, and this was pointed out earlier, is that when we’re dealing with technologies that are recognized as globally available — not U.S. source only — and for which the intent is to support U.S. competitiveness, restricting the technology assistance or sale of said products to for example, UAE, whereas allowing the sale to Europe, is difficult to get your head around.

JOHN ORDWAY:  What about satellite in-orbit servicing of spacecraft. Is there any thinking on that at State?

Anthony Dearth:  We tried to draw a line between what is currently available, and what is in the developmental stage. For satellite servicing, as well as suborbital spacecraft, we consciously decided there is not enough information out there for us to make a decision for it to be not controlled, or controlled under Commerce regime.

I don’t think the U.S. government is the only one nervous about this. Along with the good things that can be done by autonomous servicing vehicles, there are also nefarious things. I would think satellite owners and operators would themselves be concerned about that.

If you want to draw a parallel, there is still quite a debate about the adequate control of pilotless cars. At what point do we take hands off?

The shorter answer is: Have we considered it? No.

JOHN ORDWAY:  ITAR still controls the integration of spacecraft into the launch vehicle. This includes both planning and on site. On site I understand. But planning? Planning can go pretty far back in satellite design. Is the intent of the rule that it goes all the way back to Day One of satellite construction?

Anthony Dearth:  For terms not specifically identified in the writing of the regulations, the common understanding of the term should be used. I have a hard time answering this question. What it takes to plan a satellite is not a business I am in, so I don’t know how far back you walk that dog before you are actually planning.

I don’t think the intent was starting with the idea in the mind’s eye. But you tell us where that is. When you want clarity on terms like that you are welcome to come in for an advisory opinion.

Melissa Farrell: The real planning of concerns where you start bringing the launch vehicle into the discussion is something that begins within a few months of the spacecraft contract.

JOHN ORDWAY:  Should that be ITAR-controlled?

Melissa Farrell: This is a sign of the maturity of the industry. We’ve learned under the previous ITAR restrictions to have those discussions in such a way that there’s a well-defined checklist for what information is being shared.

Anthony Dearth:  Many of the available launch providers have a common set of interfaces among them. That’s just the envelope a spacecraft has to fly in. Likewise, spacecraft manufacturers have an envelope that they fly in and they and the launch providers make sure they are both operating in the same envelope.