Analysis: Satellites and ARMs control - nobody wins

US satellite firms are becoming increasingly vocal about the impact arms control legislation is having on business.

Back in 1999, the US government transferred licensing authority for satellite exports from the Department of Commerce to the Department of State under the International Traffic in Arms Regulations (ITAR) regime. The move placed commercial satellites, systems and their components on the US Munitions List, obliging all US suppliers to seek specific and detailed permission to sell their wares to foreign buyers or to launch American satellites on foreign launch vehicles.

If this had been a simple rubber-stamping process, no-one would have worried, but treating innocuous and widely available electronic components as if they were weapons - and allies as if they were enemies - has had significant ramifications, not least for American industry.

Ostensibly intended to prevent America's 'superior technology' falling into enemy hands, ITAR had an immediate effect on the US satellite manufacturing industry. Its overseas customers were forced to leap bureaucratic hurdles to receive reports or visit cleanrooms to see their own satellites.

Non-US satellite builders endured a similar exercise when ordering, purchasing and receiving components or subsystems from American subcontractors, which meant delays and increased costs. And insurance underwriters had to jump through hoops to obtain the information they needed.

As a result of the ITAR regime, America's leading satellite builder Hughes (now Boeing) was obliged to default on a $450m contract with Asia Pacific Mobile Telecommunications, resulting in contract penalties of $92m, while Space Systems/Loral had to suspend work on Chinasat-8 and delay delivery of payload components to Alcatel Space, in France, for the Intelsat 9 series. European underwriters declined to cover some American satellites, US satellite executives complained that ITAR was harming exports and scientists realised that it made international collaboration and academic exchange difficult, if not impossible.

By March 2005, Alcatel (now Thales) Alenia Space had developed an 'ITAR-free communications satellite', completely devoid of US components, that could be marketed anywhere and launched by non-American rockets. In fact, Hong Kong- based APT Satellite Holdings had insisted on launching its Apstar 6 satellite on a Chinese Long March - specifically banned under ITAR - thus obliging Alcatel to revamp its components list. The message that America no longer had a hold on the global satellite market was clear.

Perhaps coincidentally, a few weeks after Alcatel's announ-cement of its ITAR-free satellite, US Congressman Dave Weldon introduced language to the 2006 Science, State, Justice and Commerce Appropriations bill that would create, as he put it, "a more timely approach to export processing". It had little effect and, since then, industry actors and observers have become increasingly vocal about the way ITAR is harming US industry.

One of the most vocal is Pierre Chao, senior fellow with the Defense Industrial Initiatives Group. Speaking at the Satellite 2008 conference in Washington DC in February, he said: "The problem with ITAR is once you list a satellite as munitions, every subsystem, down to a two-inch bolt, is then considered munitions. ITAR is a very blunt tool."

Moreover, it's an expensive tool. According to Chao, the financial burden of ITAR is "7-8 per cent of earnings", equivalent to a company's profit margin or money it would otherwise spend on R&D. As a result, many smaller firms can't afford, or can't be bothered, to do international business.

A recent report by the Washington-based Center for Strategic and International Studies (CSIS) shows that the annual cost of ITAR to industry had risen to some $60m by 2006. "Lost sales attributed to licensing" exceeded $500m, almost 14 per cent of the total subject to ITAR.

Despite the general gloom, there is a flicker of light on the horizon. This January, US President Bush announced "a series of steps… to ensure that dual-use export control policies and practices support the National Security Strategy while facilitating US economic and technological leadership". The steps include providing additional funding for more people to assess license applications faster and, according to the Department of Commerce, an improved system to differentiate between "reliable foreign customers" and "proliferators, international terrorists…" and the like.

Whether or not this actually helps is open to question, especially if it fails to address the fundamental flaw of the ITAR system: its inability to distinguish widely available commercial technologies from militarily sensitive hardware.

Perhaps more importantly to America, since 1999 ITAR has done nothing to stop China developing the technology to launch its own manned spacecraft and destroy one of its own satellites in orbit, and nothing to stop Iran developing its Omid satellite and SLV launcher.

Has classifying satellites as weapons systems made Americans feel safer? Has burdening its closest allies with costly, time-consuming, and ultimately pointless bureaucracy made America any friends? I doubt it.

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