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Experts See Export Controls Harming U.S. Sales

By | October 2, 2006

      Export controls cause U.S.-based satellite companies to lose business to non-U.S. firms, according to experts at a recent symposium.

      “There was a clear consensus among speakers and participants that these controls are damaging U.S. firms’ global competitiveness,” but at the same time, “There was also faint optimism that the next Congress may address the problem,” according to the Center for Strategic and International Studies (CSIS).

      CSIS, the Chamber of Commerce Space Enterprise Council and the Satellite Industry Association hosted the event.

      Criticism was directed against export controls called The International Traffic in Arms Regulations (ITAR).

      The controls, enforced by the Department of State, were instituted to prevent highly sensitive U.S. defense-related technology and critical military knowledge from being acquired by potential enemies.

      In 1999, Congress directed that technologies pertaining to commercial satellites return to the list of controlled technologies, CSIS recalled.

      If controls are to be imposed, they should work well with industry, rather than pose a hindrance, according to the experts.

      “Both prime- and sub- contractors, as well as satellite operators and consulting services, find that the ITAR process is too slow,” according to CSIS. “The State Department’s backlog of applications places U.S. firms at a comparative disadvantage when negotiating with customers.”

      In specific numbers, there are now annually 60,000 applications at the State Department, with approval taking more than 70 days.

      If a customer changes its name, the process to change the name on the license with State is cumbersome and causes delays.

      Multiple licenses are usually required for a single transaction.

      The ITAR approval process even delayed NASA when a prime contractor had a European subcontractor and fell under the export controls rules.

      While the aim of the rules is to safeguard U.S. technologies, which one might assume would protect U.S. firms wielding that technology, the practical effect of the export controls is to harm U.S. firms while aiding their foreign competition, CSIS continued.

      “The current export control regime has diminished U.S. firms’ market share and increased foreign firms’ entry,” according to CSIS. “Foreign firms are leveraging the ‘ITAR-free’ advantage to offer customers faster delivery of products. European satellite companies have been designing satellites without U.S. components; France launched the first ITAR-free satellite in April 2005.”

      Customers can look to European or Japanese manufacturers to provide the equipment more rapidly because their governments do not regulate satellite exports as munitions, CSIS concluded. And the fact that U.S.-based firms must comply with export regs is a situation that some customers can use to discriminate against American companies in awarding contracts.

      “U.S. firms report that governments favor non-U.S. firms in a contracting process by setting deadlines and goals that cannot be met if ITAR approval is required, effectively creating a non-tariff barrier and shutting the door on U.S. firms,” the experts concluded.

      The net harmful effect on U.S. firms can be expressed numerically, according to CSIS.

      “Prior to the change in export controls in 1999, the U.S. dominated the commercial satellite-manufacturing field with an average market share of 83 percent,” CSIS noted. But since then, “market share has declined to 50 percent. The French firm Alcatel Alenia Space has excelled since the change to ITAR. Alcatel doubled its share of the market, from around 10 percent in 1998 to over 20 percent in 2004,” according to figures at the symposium.

      To be sure, not all of the decline in market share of U.S. firms and coincident rise in market share overseas can be laid to the export controls.

      “There are, of course, other sources of decline as well, including a general overcapacity in the market space, with too many manufacturers chasing after too few contracts,” according to CSIS.

      “However, in this competitive environment, regulation has become a competitive differentiating factor.”

      Therefore, some corrective steps that CSIS calls “possibilities for improvement” might be in order.

      “The next Congress will be forming a new agenda after the elections, particularly if the House changes party majorities,” CSIS noted. Thus there is a possibility that some changes might be wrought here:

      • Hiring more licensing officers at the State Department to reduce the backlog
      • Streamlining the list of technologies required under ITAR to obtain clearance.
      • Wholesale review of satellite export control policy to reconsider Commerce Department oversight instead of State
      • Consideration of a “certified exporter” program which would approve companies to export satellite technologies rather than individual transactions

      *Loosening restrictions for export to NATO allies

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