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The ITAR Handicap: Bureaucracy Strikes Again

By | March 15, 2004

      By Roger Rusch

      The transfer of technology is a legitimate concern of every advanced country. This situation is especially true if the developments have been funded through public resources. Intellectual achievements are an essential element in the competitiveness of nations and in warfare.

      In recent years, there has been increasing concern that sophisticated military technology might be sold by advanced nations. Consequently, strict U.S. export controls have been codified through the International Traffic in Arms Regulations (ITAR).

      For reasons that are not entirely clear to the U.S. space industry, the manufacturing of satellites falls under the ITAR. The laws have been in force for more than thirty years, but recent implementation is extreme. Starting in 1996, several U.S. satellite manufacturers were accused of providing unauthorized technical assistance to China. This has precipitated more intense and apparently punitive regulation of satellite exports.

      Onerous New Processes

      Obtaining ITAR approval for export requires substantial, non-productive effort. Satellite manufacturing companies must submit applications, respond to questions, follow paperwork through multiple government offices and revise it if requests are denied.

      The U. S. Department of State is responsible for the final approval, but it must seek agreement from selected departments, including the U.S. Department of Defense. Sometimes consultants with government experience are retained to expedite the process. This proceeding often adds months to a procurement process, because proposal documents must be submitted for approval in advance of submission. After contract award, adherence to ITAR procedures can delay the design and construction process.

      Policy administrators hinder some essential tasks. Occasionally, non-U.S. insurance companies are prohibited from reviewing satellite designs. The underwriters need clear insight into technical problems to help ensure proper steps have been taken to eliminate design defects. This review should not be considered technology transfer to a technical institution. Instead, it is essential due diligence. Without insurance coverage, procurement agencies would be required to assume considerably more risk.

      Sometimes customers are not permitted to have access to work in progress. Customers want to understand the quality and processes used to design and produce high-value goods. Imagine if high-rise office buildings were constructed without inspection or visits from the buyer. Few people would be willing to procure an expensive, custom product if they had to pay in advance but they could not examine the product until time of delivery.

      Implementation of the ITAR policies has been carried to extremes. Not only are finished products controlled, but also any component that could be used on a satellite has been subjected to Byzantine licensing procedures. We understand that simple magnets, electrical connectors and ball bearings have been subjected to munitions export controls, even though these parts are commonly available virtually anywhere. These stringent U.S. export controls can mean that every part must be tracked as an individual item and reported. Excess materials also must be returned to the source – adding to the burden for complying companies.

      Industry Burden

      The cumbersome U.S. government process is producing a hardship for the entire U.S. space industry. Some customers have selected a European prime contractor, despite lower bids from U.S. companies, because European suppliers are not encumbered by U.S. government red tape. At least one European satellite manufacturer has specified that no U.S. parts shall be used on its satellites. The figure is based on the Palos Verdes, Calif.-based TelAstra consulting firm’s data on commercial geostationary satellite sales. The graph suggests that the European market share has increased since the U.S. government toughened the ITAR process. Clearly, a larger share has been going to the European prime contractors. It also is true that the U.S. dollar was very strong, so exchange rates were favorable to European prime contractors, but the ITAR process certainly has had a negative effect on foreign sales of US satellites.

      Foreign suppliers of satellite parts who have established business relationships with U.S. companies are subjected to these same awkward processes. Naturally, these companies are looking for alternative sources of supply, and they certainly will find them. This business may be lost to the United States forever.

      What’s Wrong?

      In the past, the space industry was a substantial exporter of high-value products. But today, the U.S. trade deficit climbs every month to new record highs — the January 2004 trade deficit was $43.1 billion. The dollar has become weaker during the past two years, making U.S. products more attractively priced. Nonetheless, the U.S. space industry is now in the bizarre situation where it cannot take advantage of favorable exchange rates because space exports are impeded by government policy. Bureaucracy is partially responsible for the expanding U.S. trade deficit.

      It is ironic that there is government support for the outsourcing of computer-programming skills and other professional services to China and India. Clearly, outsourcing is building a strong technical competition for U.S. companies. It also provides a high-technology base in other countries funded by the United States. The net result is that U.S. satellite operators can buy foreign technology and products, but the space industry has a difficult time selling the very satellites it invented.

      What To Do?

      U.S. trade groups could lobby for a more rational export licensing process. Complaining has not altered the situation to date, but this is an election year. The president, every congressman and one-third of the U.S. senators must run for re-election this year. Some of these elected officials may have noticed that there are some unhappy citizens. More than half the voters think it is time to make some changes. A reminder that export policy is a problem might finally bring about some improvements. For its part, the industry must help ensure there are no more violations of export control that would justify current policies.

      One possibility would be to develop an alternative to the government process. Internal self-policing policies could build government confidence in the space industry. It might be possible to establish an export review czar within the Satellite Industry Association or some similar organization.

      The time is right to take corrective action.

      Roger Rusch is the president of TelAstra Inc. You can contact him at 310/373-1925 or via e-mail at

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