America’s commercial space industry holds a dominant position in the global market, but due to a number of factors, other countries are beginning to gain more market share. Many small suppliers maintain that the primary problem is the International Traffic in Arms Regulations (ITAR), which threatens their survival while protecting the position of larger suppliers.
The U.S. commercial space industry has been the global leader for more than 50 years, but as competition for contracts has become more intense around the globe, ITAR — a set of government regulations that controls the export and import of defense-related articles and services on the U.S. Department of State’s Munitions List — has been inhibiting the growth of thousands of small U.S.-based suppliers while protecting the larger providers, according to some industry officials and observers. Charles Huettner, executive director of the Aerospace States Association, warns that ITAR, which began initially as a nuisance to U.S. businesses, has evolved into a serious problem. “ITAR has led to increased global competition and is a significant impediment to the U.S. space industry’s ability to market to foreign buyers resulting in decreased sales and competitiveness,” he says. Regulators do not seem to grasp the unique balance that makes up the systems that they work to protect in the name of national security. Can this be reversed? Can the weighing of national security and the global economic realities lead to a more realistic oversight, or is it time to eliminate ITAR?
Rise in Global Competition
The goal of ITAR is to advance national strategic objectives and U.S. foreign policy, and the list of ITAR-controlled technologies is modified continually to meet that goal. One change that had a huge impact on the satellite industry came after the U.S. Department of State charged Space Systems/Loral with violating the Arms Export Control Act and ITAR following a February 1996 launch failure of a Chinese Long March rocket. As a result, Congress in 1999 passed ITAR authority from the Department of Commerce to the Department of State and since then, the balance has been tilted toward national security over profit margins, as technology related to satellites and launch vehicles became more rigidly protected. ITAR today controls satellites and all specifically designed or modified systems or subsystems, components, parts, accessories, attachments, and associated equipment for satellites as well as many dual-use technologies such as software, integrated circuits, computers, electronics and security-related information systems that are vital for satellites and launch vehicle technologies.
The unintended impact of the regulation change has been that countries such as China, Pakistan, India, Russia, Canada, Australia, Brazil, France, the United Kingdom, Italy, Israel, the Republic of Korea, Ukraine and Japan have grown their commercial space industries, while U.S. companies have seen dramatic losses in customers and market share. But the economic impact on the U.S. industrial base has not been caused solely by ITAR’s classification of communications and other commercial satellites as “weapon systems.” The decline has been aided by the technology outsourcing and offshoring business models that are fueling today’s business profits. The underpinning of the U.S. commercial space industry is the extended supply chains that begin with a simple fastener and move to components, subsystems and systems until the transformation process results in a satellite, ground system and a launch vehicle, but the same time U.S.-based companies are having difficulty exporting some products, that work also is being sent overseas.
Figures released in May by the U.S. government stated that 40 percent of domestic market growth came from exports, and world turnover generated from commercial and government contracts is projected to reach $158 billion by 2010. But despite these numbers, a study released the same month by the American Institute of Aeronautics and Astronautics (AIAA) alleges that U.S. rules restricting exports of American military technology are harming the U.S. aerospace industrial base, especially in satellite component sales. This impact especially is being felt within the satellite manufacturing market, where an increase in the complexity of satellite architectures, size, power, software, components, subsystems, systems and broadband applications are further factors that are elevating concerns that ITAR will further shrink the U.S. industry’s market share. “The throttling of our U.S. based companies in achieving their export capability is slowly crippling our ability to generate the technology advances that guarantee that the U.S. remains economically strong and safe from harm,” says Frank Morgan, vice president of MCL.
Retired Air Force Maj. Gen. Craig Weston, vice president of SRA International Inc. and deputy director of the SRA C4ISR Center, says he wishes to see Congress “revisit the stringent ITAR provisions” that harm U.S. industry, because “ITAR actively discourages the exchange of ideas” between U.S. and overseas innovators. “ITAR is adversely affecting national security” of the United States. He specifically cites ITAR’s impact on satellite components. If U.S. components have technology the same as or less capable than overseas technology, then one should ask why U.S. components must continue to be subject to ITAR restrictions, he says.
While other nations have restrictions that their corporations face on exports of militarily sensitive technology, the limitations there are nowhere near as restrictive as ITAR regulations, the AIAA says, and because of ITAR restrictions, some overseas firms may not wish to have U.S. companies participate in joint projects, because an American firm would bring with it ITAR restrictions, the organization says.
The AIAA could not estimate how much U.S. industry would gain in foreign sales if ITAR restrictions were eased but says smaller firms at the second or third tier levels would benefit if components such as solar cells, batteries, traveling wave tubes, digital imagers, optical coatings, some integrated circuits, focal plane arrays and more were removed from ITAR control. “The report recommends that ITAR processes be frequently reviewed and adjusted, ITAR staffing adjusted, and restrictions regarding sales to U.S. Allies are reexamined to reflect geopolitical and economic considerations.”