Rejection Of AsiaSat Deal Highlights Commercial Impact Of Export Control
In April, the U.S. State Department used the American technology export regulatory regime to bar the $295 million acquisition of AsiaSat by its principal shareholders, GE Capital Equity Investments and Citic Group of China.
The deal would have taken AsiaSat private, but the U.S. government decision has left GE Capital, which recently acquired its AsiaSat stake from Fixed Satellite Services operator SES Global, in the position of deciding whether to remain a minority shareholder in a public company or to buy out Citic as well as AsiaSat’s minority shareholders.
The move also reignited concerns within the American manufacturing sector that regulatory strictures put U.S. companies at a competitive disadvantage in exporting to foreign purchasers. Although the United States does not generally restrict export of technology, limits have been imposed on those exports considered to have security implications. Certain telecommunications and aerospace equipment and components as well as information security software, including encryption products, are considered to implicate national security and are therefore subject to export restriction. Where technology export restrictions apply, acquisition of a U.S. company by non-U.S. persons may also breach export controls.
The scope of restriction depends on relevant Export Administration Regulations of the U.S. Department of Commerce Bureau of Industry and Security (formerly the Bureau of Export Control) or the International Traffic in Arms Regulations (ITAR) of the Department of State Directorate of Defense Trade Controls. Certain technologies deemed to be vital to national security or anti-terrorism measures may be denied to countries that the U.S. government considers to be engaged in state-sponsored terrorism. Others require an individual exporter’s license. Violations of the these regulations carry civil and criminal penalties.
The October 1998 U.S. military budget bill required the Clinton administration to shift control of satellite technology exports from the Commerce Department to the State Department, supposedly tightening control of technology transfers. The State Department considers only security issues when reviewing technology transfers, while Commerce is more concerned with business and trade development. Therefore, virtually all satellite technology on ITAR’s “munitions list” of controlled technology.
AsiaSat operates three satellites built by Boeing and Lockheed Martin with a fourth is on order from Space Systems/Loral; therefore, the sale of AsiaSat to Citic, which would have increased the Chinese company’s stake from 34 percent to 50 percent, was subject to ITAR review.
The January 1999 Report of the Select Committee of the U.S. House of Representatives (Cox Report) charged China with engaging in a systematic campaign of espionage to appropriate U.S. missile and thermonuclear weapon technology. According to the Cox Report, part of the Chinese campaign occurred when U.S. satellite manufacturers Hughes and Loral analyzed three launch failures involving Chinese-manufactured Long March rockets and Hughes- or Loral-manufactured satellites. The satellite builders recommended improvements to the rockets that had potential applicability to ballistic missile launches without receiving the required State Department export licenses and in violation of ITAR. Since this event, the State Department has been particularly sensitive about ITAR-controlled exports to China.
Notwithstanding, a critical issue in the satellite technology export issue is the true security sensitivity of the technology for which export is sought. Few would argue against controlling the export of genuinely cutting-edge technology with military application — as most satellite technology potentially has — to certain destinations. However, when ITAR restrictions are used to block fundamentally off-the-shelf technology that any consignee or purchaser can obtain from a non-U.S. competitor, then, given the regulatory rationale, it is fair to ask if U.S. commercial competitiveness is being sacrificed reflexively for no particular security benefit.
Ironically, the weakness of the U.S. dollar and heightened security consciousness in the post-Sept. 11 era have masked the true cost to U.S. exporters of ITAR and the export technology regulatory regime generally. The strengthened euro, yen and pound sterling, along with the weakened dollar, have to some extent rebalanced the playing field in U.S. manufacturers’ favor, since their products are relatively cheaper to non-U.S. buyers. Also, post Sept. 11, voices pleading the commercial impact of security regulations have been muted. But for these factors, the ITAR regime might loom as even more of an export trade barrier than it does.