U.S. Satellite Industry Reeling Under New Export Controls
Tighter export controls triggered by fears of Chinese espionage are crippling the U.S. satellite industry and undermining American technological supremacy at a time of fierce global competition.
In nearly two years since Congress imposed additional export restrictions on commercial satellites, the U.S. share of the global market has plummeted from 75% to 45%, according to the Satellite Industry Assn., a Washington-based trade group.
This marks the first time that the U.S. share has fallen below 50%, with the preponderance of the impact falling on California’s long dominant spacecraft manufacturers.
Industry and military experts warn that further erosion of America’s decades-long dominance of the global satellite industry poses a serious threat to this country’s long-term commercial and military competitiveness.
The drop has been so severe that some of the staunchest supporters of the tougher export controls concede that Congress--led by conservative Republican legislators from California--may have gone too far.
The lawmakers are even considering reversing some of their hastily imposed restrictions, which forced companies to obtain thousands of separate government licenses. The original impetus for the rules, involving allegations that U.S. firms gave China information critical to its missile program, has been widely disputed.
It was in response to criticism that U.S. companies were transferring sensitive technology to China that Congress moved oversight of export licensing from Commerce to the State Department in March 1999 and reclassified commercial satellites and related components as munitions.
U.S. satellite makers complain that having commercial satellites classified with tanks, missiles and bombs has resulted in time-consuming and expensive licensing delays and denials, which have caused their customers--even U.S.-based Intelsat, GE American Communications and Inmarsat--to turn to more reliable suppliers in Europe.
The State Department, for its part, maintains that the export licensing process has improved in the last six months, with the average number of days it takes to acquire a license dropping dramatically.
Contracts Canceled, Business Lost
Last year a Singapore mobile telecommunications company canceled a program to buy two communication satellites worth $450 million from Hughes Space and Communications, now Boeing Satellite Systems, after the State Department objected to launching the satellites on a Chinese-made rocket.
And earlier this year, the Canadian Space Agency backed out of a $75-million contract with a Herndon, Va.-based Orbital Sciences Corp. subsidiary to provide a satellite component, citing frustration with the export restrictions. The contract was subsequently awarded to an Italian firm.
In all, the number of publicly reported orders of U.S.-made geostationary satellites, the most popular type, dropped from 16 in 1998 to 13 so far this year while orders for European spacecrafts rose from 6 to 16 in the same period. Each satellite can cost up to $250 million.
Such losses come at a time when European governments are aggressively promoting aerospace development, leading to a marked improvement in the quality and price of satellites made by Astrium, formerly Mastra Marconi Space, and France’s Alcatel Space, two leading foreign competitors.
“While others are preparing to become more competitive in this market, we’re shooting ourselves in the foot,” said John Logsdon, director of the Space Policy Institute at George Washington University.
Moreover, if weakened U.S. satellite makers cede this market to foreigners it will jeopardize America’s global surveillance, reconnaissance and communications network, the linchpin of the Pentagon’s 21st century battle plan, security specialists say.
To an increasing degree, the U.S. military depends on private aerospace technology to monitor North Korean troop movements, locate suspected Iraqi weapons facilities or eavesdrop on foreign governments.
“This was a feel-good solution that over the long run probably hurt American security,” said Loren Thompson, a defense analyst at the Washington-based Lexington Institute, a conservative think tank.
The implications are particularly ominous for California, home of the world’s leading satellite makers, including Boeing Satellite Systems, Loral Space and Communications and Lockheed Martin Co.
Over the past three decades, the state has provided nearly two-thirds of the world’s telecommunications satellites, has hosted 90% of the world’s polar launches and has been a leader in NASA and Department of Defense-sponsored aerospace research at such academic institutions as UC Berkeley, Stanford University and Caltech.
“Some of the things that have fallen under export controls are the keys to California’s economy,” said James Mulvenon, a China military expert at the Rand Corp. and critic of the satellite controls.
Industry officials--who are pushing Congress to reverse the 1999 decision--say the damage has spread far beyond the satellite manufacturers. Subcontractors, consultants and even university researchers have run afoul of the new law.
Stanford recently dropped plans to launch a student-made satellite on a Russian rocket after State Department officials insisted that the school apply for an export license. To apply for the license, the university would have had to register as an arms exporter.
“It bordered on the ridiculous,” said Robert Twiggs, director of Space Systems Development at Stanford.
Frustrated University of California officials report that they have had to decline or abort numerous aerospace research contracts because of newly imposed restrictions on involvement by foreign nationals or travel overseas by U.S. scientists.
Allison Rosenberg, director of research policy and development for the UC system, said the stiffer controls conflict with the universities’ commitment to scientific openness and nondiscrimination except in cases involving classified materials. The Assn. of American Universities and the National Assn. of State Universities and Land Grant Colleges have joined in opposing the controls.
Studying Controls’ Impact on California
Alarmed, the California Space and Technology Alliance, a nonprofit group connected with the governor’s office, has asked the Satellite Industry Assn. to prepare a report on the impact of the export controls on California. Those findings will be presented to state officials Wednesday.
Even some of China’s harshest critics now concede that the revised export controls are a threat to a key California industry.
In a significant reversal, Rep. Dana Rohrabacher (R-Huntington Beach), a major backer of the 1999 move, said he would consider shifting the satellite export controls for NATO allies or other friendly countries back to Commerce, given the “very legitimate concern” about the long-term health of this critical U.S. industry.
Rohrabacher, a member of the House International Relations Committee and outspoken critic of China, blames State Department bureaucrats, not Congress, for the industry’s woes. Last year, he sponsored legislation to provide additional funds to the State Department to expand its staff and create a two-tier system to speed export licensing for NATO countries and other U.S. allies.
“The State Department is dragging their feet,” Rohrabacher said. “Certainly, maybe we should take away part of the power and take it back to Commerce in dealing with all countries that are democratic and pose no threat to the United States.”
But William Reinsch, undersecretary for the Commerce Department’s Bureau of Export Administration, said the licensing authority for all commercial satellite exports should be transferred back to his agency and only those items deemed militarily sensitive should remain under State’s control.
“You can’t fix this by tweaking it,” he said.
A State Department official denied her agency is the culprit and said the export licensing process has dramatically improved in the last six months. She said the average number of days it takes to acquire a satellite export license has dropped to 50 days for those products requiring reviews by other agencies, such as the Defense Department, and 17 days for those needing just State’s approval.
But Clayton Mowry, executive director of the Satellite Industry Assn., disputed those figures. He said it still takes an average of 100 days to get the government’s licensing approval, and U.S. satellite makers had to get an additional 3,000 licenses this year to sell their products abroad. A typical commercial satellite contract calls for a 90-day turnaround.
Mowry said U.S. satellite makers are not interested in jeopardizing national security for commercial gain. They agree that some items contained in commercial satellites--such as kick motors, radiation-hardened chips and encryption devices--should be regulated as weapons.
Moreover, U.S. aerospace officials argue that these export control efforts are often futile because most of the technology in U.S. commercial satellites is available from foreign competitors that don’t have similar restrictions.
They also point out that sanctions imposed after the 1989 Tiananmen Square incident already set a higher bar for China, by requiring any satellites sold or launched in that country to be approved by the president. To prevent the Chinese from getting access to sensitive components, satellites sent to China are closely guarded until they are launched into space.
Still, the satellite industry found itself in the hot seat when accusations surfaced--first in the New York Times and later in a congressional committee chaired by California Rep. Christopher Cox (R-Newport Beach)--that Hughes and Loral had severely compromised U.S. security by sharing sensitive information with the Chinese in the aftermath of two failed rocket launches in that country.
Later reports refuted claims that China was able to significantly improve its nuclear weapons capabilities using material it had illegally obtained from U.S. satellite makers or spies.
But within days of the initial media reports, China critics in Congress--including Cox, Rohrabacher and Rep. Duncan Hunter (R-El Cajon)--accused the Commerce Department of selling out U.S. security interests and began pushing for stricter controls on U.S. satellite exports, particularly to China.
A grand jury convened last year to investigate the charges against Hughes and Loral has adjourned. Sources in Washington said the U.S. government is exploring a plea agreement with the two companies that would probably include monetary penalties. Loral and Hughes continue to deny any wrongdoing.
Gareth Chang, who headed international operations for Hughes at the time of the alleged violations, declined to comment on the charges because the investigation is ongoing.
But Chang, who is now chairman of Click2Asia, an Internet firm, said U.S. satellite makers have lost credibility with foreign buyers, particularly in some of the world’s fastest growing markets in Asia and the Middle East.
“Governments fear there may be a potential political decision made, and they say, ‘We can’t afford to spend multimillion dollars on such a selection,’ ” he said.
U.S. satellite makers have been careful about criticizing Congress or the State Department out of fear of jeopardizing pending applications.
Instead company officials say they are trying to work “within the system” including boosting staff to handle export applications.
Boeing Satellite Systems has 20 employees whose job is to apply and respond to State Department queries, up from just three two years ago, according to a spokesman.
The harshest criticisms have come from industry representatives.
“Congress took a sledgehammer to something that only required a jeweler’s tool,” said Joel Johnson, vice president for international affairs at the Aerospace Industries Assn. “Instead of focusing on controlling Chinese launches, Congress went after the entire industry.”
