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    Greater China
     Dec 4, 2008
US firms tired of being shut out
By Peter J Brown

Part 1: A fresh start or a protracted showdown?

United States president-elect Barack Obama and his new administration will quickly see that dealing with China in space is going to be tricky. In 2009, a new satellite will be launched that speaks volumes about the complexity of the global space environment and the need for the US to delicately balance national security and commercial space interests. After all, China still offers the cheapest rides to space for commercial satellites via its Long March rockets, and beyond that, China still buys foreign-built - especially European - satellites on occasion.

Next summer, Indosat's Palapa-D, a new communications


satellite being built in Europe by Thales Alenia Space, will be launched on a Chinese Long March rocket. It will provide satellite-based services throughout Indonesia and other countries stretching from Australia to the Middle East. Palapa-D serves as a painful reminder for US companies who have spent years trying to convince the US government that US satellite companies are being penalized and rapidly losing ground in the commercial space realm thanks primarily to the International Traffic in Arms Regulations (ITAR). The regulations have since 1999 become, among other factors, a major source of irritation for US satellite exporters and space component manufacturers.

The US Department of State's Directorate of Defense Trade Controls oversees ITAR satellite-related controls, and works closely with the US Department of Defense's Defense Technology Security Administration.

According to Rosanna Sattler, a partner with Boston-based Posternak Blankstein and Lund LLP (PBL) and 2008 Chair of the 33-member Space Enterprise Council of the US Chamber of Commerce, PBL's space law practice group receives many complaints from primary contractors as well as from subcontractors and suppliers concerning ITAR.

A white paper entitled "ITAR and the US Space Industry", issued by The Space Foundation in September, identified a number of longstanding problems with ITAR:
  • "The export licensing process is lengthy, unpredictable, and inefficient. The expertise required to understand the technical details often lies outside the State Department and consultation is time-consuming.
  • "ITAR restricts the ability of US firms to compete because foreign companies do not operate under equal restrictions. Technology remains on the United States Munitions List, even when it is commercially available in other countries, because lists of critical US military technologies are seldom updated.
  • "Small firms do not have sufficient resources to comply with ITAR so the cost of compliance is a barrier to entry; this is a concern since lower-tier companies are a major source of innovation. Regulations also deter or delay collaboration with foreign partners, increasing the financial burden on a sole firm," The Space Foundation declared.

    Palapa-D is part of a new phenomenon, completely "ITAR-free" satellites. It is a modified version of the Thales Spacebus 4000 communications satellite, and being certified as "ITAR-free" allows it to use a launch site in China and a ride on a lower cost Chinese Long March rocket. Both the European Space Agency and the French space agency CNES (Center National d’Etudes Spatiales) are providing funding for ITAR-free initiatives such as Palapa-D.

    ITAR expert Kerry Scarlott, a partner of PBL, said that whether satellite components will or not be subject to ITAR control depends solely upon an analysis of whether they were specifically designed or modified by a US person for a satellite application.

    "A European satellite may include US-origin components and remain 'ITAR-free', provided that the US-origin components were not specifically designed or modified for use in a satellite," said Scarlott. "Take, for example, something as basic as a wire harness. If the wire harness is generic and is not designed or modified specifically for use in a satellite or some other military application, then the wire harness is ITAR-free."

    ITAR irritates many US companies because it goes all the way down to nuts, bolts, and screws. No ITAR-controlled items whatsoever could be present on a satellite which the manufacturer then designates as ITAR-free.

    "A few space-qualified components used on satellites are controlled under the US Commerce Department's Export Administration Regulations (EAR), including items such as certain amplifiers and solar arrays," said ITAR expert John Ordway, a partner in Washington, DC-based Berliner, Corcoran and Rowe, LLP. "An overseas satellite manufacturer could include such EAR-controlled items on a satellite and call it 'ITAR-free'. However, if this were the case, the manufacturer would likely need to apply to the Commerce Department for approval prior to exporting the satellite to China, which application could well be denied depending upon the intended end use and end user."

    As with the ITAR, the US asserts extraterritorial jurisdiction under the EAR. Thus, with some exceptions, EAR jurisdiction adheres to EAR-controlled items wherever they are located in the world, according to Ordway.

    American companies involved in the export of satellites and related products and services are tired of the burden of ITAR, and of the millions of dollars continually lost as one satellite-related business opportunity after another slips away. Small to medium-sized US companies in particular cringe each time something like Palapa-D leaves the launch pad.

    Last year, the US Air Force Research Lab (AFRL) and US Department of Commerce issued a report "Defense Industrial Base Assessment- US Space Industry", which found that export control compliance costs averaged $49 million per year industry-wide. Compliance costs grew 37% during the 2003-2006 period with the burden of compliance significantly higher for smaller companies.

    US companies are increasingly shut out of what would otherwise be deemed as viable joint ventures in space as overseas firms seek to avoid cumbersome US controls. According to the AFRL report, medium-sized US companies are not so inclined to follow up on proposal requests let alone subsequently sell products in foreign markets. ITAR is also driving small companies out of the space sector altogether due to a lack of profitability, "and a refusal of some foreign customers to procure equipment that requires US ITAR licensing", according to the report.

    The "Duncan Hunter National Defense Authorization Act for Fiscal Year 2009", which was signed into law in October by President George W Bush, directs the US Secretary of Defense to examine what if any security risks are involved when companies - specifically defense contractors - participate in any aspect of a satellite deal or satellite launch in China.

    While this might appear at first to further the cause of ITAR reform, some are not so sure that is the case.

    "In my view, this may actually impede ITAR reform, in that it appears to play into fears regarding China's space-oriented activities," said Scarlott. "Congressman Hunter is widely known as a China hawk."

    Scarlott recommends that the incoming Obama administration should make ITAR more user-friendly by directing the State Department to work with Congress in developing appropriate legislation and ultimately revised regulations that focus the ITAR on military hardware, technology and services that truly have military applications and impact on national security concerns.

    "Administrative action alone cannot fix ITAR, rather appropriately choreographed legislative and regulatory change is required. The effort should be to streamline the ITAR so that controls are focused at the product level, as opposed to at the individual component level," said Scarlott. "Appropriate legislation, and ultimately regulation, that entirely frees commercial space enterprises and their products, services and technical data from ITAR control, provided that the products, services and tech data are not specifically identified as implicating national security concerns [would be even better]."

    At the UN, the US holds out
    At the UN, a vote took place in early November on a measure aimed at enacting a proposed ban on space weaponry including space-based anti-satellite (ASAT) weaponry which Russia and China are sponsoring. When all the votes were counted, the US cast the only vote against the measure, while Israel abstained.

    "The US began voting against such a resolution in 2005 as opposed to abstaining, as it had in the past. So, doing it again simply reinforces the current government hard-line position - which is not a surprise," said Joan Johnson-Freese, Chair of the National Security Decision Making Department at the US Naval War College. "Whether or not that remains the US position with the change in administration remains to be seen."

    According to Eric Hagt, China program director at the World Security Institute in Washington, DC, this latest vote means little or nothing to the Bush administration which has been opposing efforts in this regard for years. The US stance is that there is no space weaponization race so why enact a treaty. Besides, a treaty is not technically feasible anyway, since verification would be impossible and other less transparent nations could cheat, the Bush administration contends, according to Hagt.

    "The proposed treaty only talks about space-based weapons, not about ground-based ASATs," said Hagt. "The notion that verification is impossible is in large part a myth. And if the treaty is missing important aspects to US national security such as ground-based ASATs, you negotiate for them, not reject the whole thing out of hand."

    China and Russia support the ban simply because it is in their best interests to do so.

    "They are way behind, cannot afford to catch up and have large future stakes in developing space as well. If you are a skeptic, you might say China is not serious about this and is using a recalcitrant Bush administration to push a ban that sets China on the moral high ground while not having to act on its words," said Hagt. "Maybe, but China has staked significant international political capital on this position. Along with China’s interests in space, it is unlikely to be only theatrics. The Obama administration's challenge will be to decide whether to call their bluff and begin talking. China will not be able to back out entirely, though a long process of negotiation will ensue and both gains and losses will be had for both sides."

    The potential EU role here is emphasized as well by Frank Slijper, senior researcher at the Netherlands-based Campagne tegen Wapenhandel (Campaign against Arms Trade). Working with the Transnational Institute, Slijper produced a new report last month, "From Mars to Venus: the European Union's Steps Towards the Militarization of Space."

    "Where China and Russia have previously showed a real interest in strengthening the UN Outer Space Treaty, there could be a real role for the EU in persuading the incoming Obama government to abandon the previous US position of space dominance and non-cooperation in the area of treaty negotiations," said Slijper, who sees the rapid and ongoing build-up of military space assets, and, the chance of a military confrontation in space over Asia and elsewhere as potentially disastrous for the whole planet.

    "Moreover, the EU would be seen as an impartial party when [and if] it would clearly step back from its current drive towards integrating military space policies into civilian agencies like the ESA [European Space Agency], and programs like Galileo and Kopernikus."

    Whether the EU's commercial space enterprises will embrace Slijper's advice, and influence European politicians accordingly, remains to be seen. After all, Europe's aggressive export-driven, ITAR-free satellite campaign is just getting off the ground.

    The Obama administration has a lot on its plate when it comes to dealing with China in space, and dealing with anxious US satellite companies. The upcoming launch of Palapa-D will serve as an important reminder to the new team in the White House that things need to change, while activities at the UN draw attention to the consequences of underestimating the importance of the symbolic aspects of the overall debate at a time when the real motivations of the players are so hard to distinguish.

    Peter J Brown is a satellite journalist from Maine, USA.

    (Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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