ITAR Restrictions on US Satellite Exports to be Loosened

Under the 2013 Defense Authorization bill approved by both houses and awaiting President Obama’s expected signature, the highly controversial restrictions on US satellite exports under the International Traffic and Arms Regulation (known as ITAR) are set to be loosened. Specifically, the bill allows the president to remove commercial satellites and satellite components from the U.S. munitions list while allowing the president to keep certain technologies on the list. Exports and technology transfer to China, Cuba, Iran, North Koran and Syria would still be prohibited.

The ITAR restrictions on satellite technology, created significant hindrances for U.S. Satellite manufacturers (as well as others, particularly in the aerospace industry). Marketing meetings with foreign customers required, among other things, government chaperones and background checks on all attendees. Manufactures were also highly limited in their ability to describe their products to these customers. However satellite sales involves selling a high-priced, high technology product, often exceeding $100 million each and each satellite requires a great deal of customization for the end-customer. The bureaucracy behind ITAR was enormous. An executive of a satellite launch company once said, in response to my question on a panel at a conference, that they had 15 full-time people dealing with ITAR issues! That does not include the outside attorneys for both sides, the state department staff and others. Customers found the inability to freely share information frustrating and, in many cases took their business to manufacturers in countries without these restrictions.

The ironic of the situation is that its hard to see how the ITAR restrictions on commercial communications satellites do anything to prevent information from getting to other countries. Satellite customers in foreign countries simple started doing business with other (mostly European) satellite manufacture who are able to freely share that very same information! In the seven years after the ITAR restrictions, the Center for Strategic International Studies (CSIS), estimates the US share of the satellite manufacturing industry fell from 73% to 25%. Based on my industry experience during this time, this number seems about right. ITAR has also hurt satellite component manufacturers. Some foreign manufactures have gone out of their way to build “ITAR free” satellites – ones that don’t use any US components on the U.S. munitions list and this avoid any ITAR issues. The net effect was that the US dominance in this strategically important industry was destroyed. It created an opportunity for other countries to catch-up in this field – and they did.

The challenge for policy makers is not only to figure out how such a senseless idea came about, but also to understand why it took so long to fix and how to prevent this from happening again in the satellite industry or elsewhere. Why has the Department of State continuously stressed the security importance of these rules even though they seem logically absurd? Why did Congress, for so many years, accept these explanations despite having a large number of well-paid and articulate satellite industry executives and lobbyists repeatedly explaining this absurdity to them and their staffs? If it takes 14 years for the satellite industry to correct this problem, it’s scary to think about the problems this kind of political leadership could have on an group or an industry with fewer resources.