On 13 May 2014, the Departments of Commerce and State issued interim final rules implementing substantial changes to U.S. satellite export controls. These changes, which follow the proposed rules issued on 24 May 2013, are expected to reduce significantly the administrative and licensing burdens associated with the current export control regime. In particular, commercial satellites and related items will be transferred to the Commerce Department’s less restrictive export control regulations and exports to many U.S.-allied countries will be eligible for license exceptions. However, current restrictions on exports and re-exports of commercial satellites and related items to arms-embargoed countries, including China, will remain in place. Accordingly, companies need to assess carefully the full effect of these new rules on existing and future operations.
The new rules will transfer most non-military satellites, including commercial communications satellites (COMSAT) and related parts, components, and services from the State Department’s International Traffic in Arms Regulations (ITAR) to the less restrictive “dual-use” controls under the Commerce Department’s Export Administration Regulations (EAR). These rules follow the enactment on 3 January 2013, of the National Defense Authorization Act for Fiscal Year 2013, which restored the president’s authority to transfer COMSATs and other non-military satellites to the EAR. U.S.-origin COMSATs have been controlled as defense articles under the ITAR since 1999. The rules also are part of President Obama’s broader Export Control Reform effort, through which the administration is transitioning from the ITAR to the EAR certain items that the president determines no longer warrant the strict controls imposed by the ITAR. Copies of the Federal Register notices are available here (State Department) and here (Commerce Department).
As outlined below, the new rules:
- amend Category XV of the ITAR’s United States Munitions List (USML) to cover a more narrowly defined list of satellites (primarily military, intelligence, and certain remote sensing satellites) and related ground systems, components, parts, software, and technical data;
- exclude telemetry data, as defined in USML Category XV, from the definition of technical data under the ITAR and confirm that such telemetry data subject to the EAR generally is classified as EAR99;
- clarify that satellites subject to the EAR remain subject to the EAR even if defense articles subject to the ITAR are integrated into such satellites, unless the satellites take on the characteristics described in Category XV;
- revise Categories IV and XV of the USML to more precisely describe the services that still warrant control under the ITAR, including furnishing assistance related to satellite launches, satellite/launch vehicle integration, and satellite launch failure analysis;
- clarify which special export controls apply to satellite launches conducted outside the United States, including launches of EAR-controlled satellites; and
- amend the EAR to address how items previously controlled under USML Category XV will be controlled on the EAR’s Commerce Control List (CCL).
These rules will be effective 10 November 2014, but portions of the rules related to radiation-hardened microelectronic circuits will be effective 27 June 2014. Public comments regarding certain revisions to USML Category XV(a)(7) and (e)(11) and 22 C.F.R. § 124.15 may be submitted by 27 June 2014.
Both U.S. and non-U.S. companies currently engaged in ITAR-controlled satellite activities will need to assess the benefits and limitations of these new rules on their businesses. Moreover, companies should be mindful that under “transition rules” published separately on 16 April 2013, U.S. exporters will have up to two years after the effective date of these rules to amend or replace existing ITAR authorizations with EAR licenses for items moving from the USML to the CCL.
Department of State interim final rule
Changes to USML Category XV
Currently, virtually all U.S.-origin satellites, including COMSATs, are controlled as defense articles under the ITAR. As a result, COMSATs and other non-military spacecraft have been among the only dual-use items subject to the same strict export controls as major U.S. weapons systems.
The State Department’s 13 May interim final rule will significantly narrow the scope of USML Category XV to cover only:
- certain spacecraft, including satellites, with specified missile tracking capabilities, remote sensing satellites, satellites with classified components, and certain other satellites with specified technical characteristics;
- ground control systems and training simulators specially designed for telemetry, tracking, and control of satellites controlled under Category XV;
- Global Positioning System receiving equipment that is military-related or meets certain other technical parameters (such equipment eventually will be moved to a revised USML Category XII);
- space-related parts and components meeting certain technical parameters;
- technical data and defense services directly related to defense articles controlled under Category XV; and
- classified technical data directly related to certain satellite-related items being transferred to the CCL and defense services using such classified technical data.
In a notable exception to the standard ITAR “see through” rule, Category XV also will be revised to clarify that satellites subject to the EAR generally remain subject to the EAR even if defense articles subject to the ITAR are integrated into such satellites, unless the satellites take on the characteristics described in USML Category XV(a). The rule defines primary, secondary, and hosted payloads, and further clarifies that an EAR-controlled satellite generally remains subject to the EAR even if its hosted payload has the characteristics described in USML Category XV(a), but an EAR-controlled satellite becomes subject to the ITAR if its primary or secondary payload has the characteristics described in USML Category XV(a).
Finally, Category XV of the USML also will be revised to allow the State Department to license the export of commodities, software, and technical data subject to the EAR, provided such items are used in or with Category XV defense articles. This authority, however, will be available only when the license would cover both ITAR and EAR items.
Finally, Category XV also will be revised to allow the State Department to license the export of commodities, software, and technical data subject to the EAR, provided such items are used in or with Category XV defense articles. This authority, however, will be available only when the license would cover both ITAR and EAR items.
Satellite launch-related changes to USML Categories XV and IV
The State Department’s rule clarifies that these defenses services directly related to satellite launch-related activities remain subject to the ITAR:
- furnishing of assistance (including training) in the integration of a satellite to a launch vehicle, including both planning and on-site support, regardless of (i) the jurisdiction (EAR or ITAR), ownership, or origin of the satellite or (ii) whether technical data is used; and
- furnishing of assistance (including training) in the launch failure analysis of a launch vehicle, regardless of (i) the jurisdiction (EAR or ITAR), ownership, or origin of the launch vehicle or (ii) whether technical data is used.
These defense services clarifications originally were proposed to be included in the revised definition of defense services that was published with the State Department’s May 2013 proposed rule for USML Category XV, but they now are incorporated into Categories IV and XV.
The State Department’s rule also clarifies that special export controls will continue to apply to satellite launches conducted outside the United States, even launches of EAR-controlled satellites. Licenses are required for launch failure (crash) investigations of EAR and ITAR-controlled satellites launched from a foreign country, and the Commerce Department’s 13 May interim final rule imposes certain additional licensing requirements for launches of EAR-controlled satellites from a foreign country.
Exclusion of telemetry data from the definition of technical data
The State Department’s 13 May interim final rule will exclude telemetry data, as defined in Note 3 to paragraph (f) of Category XV, from the definition of technical data under the ITAR. Such telemetry data is subject to the EAR and is designated as EAR99. The rule also clarifies that processing such telemetry data does not, by itself, transform such data into ITAR or EAR-controlled satellite technology. Although this exclusion of telemetry data from the definition of technical data codifies existing U.S. government policy and interpretation, the exclusion was not universally understood, particularly among foreign aerospace companies.
Department of Commerce interim final rule
The parallel Commerce Department interim final rule will create new “500 series” Export Control Classification Numbers (ECCN) for spacecraft and related items being transferred to the CCL from USML Category XV. The new ECCNs are:
9A515 – spacecraft, including satellites, not enumerated in Category XV of the USML and related hardware;
9B515 – test, inspection, and production equipment “specially designed” for the production or development of items enumerated in ECCN 9A515 or USML Category XV;
9D515 – software “specially designed” for the development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of items enumerated in ECCNs 9A515 and 9B515; and
9E515 – technology “required” for the development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of items enumerated in ECCNs 9A515, 9B515, or 9D515.
The Commerce Department rule also will add to ECCN 9A515 a .y paragraph to which low-level anti-terrorism controls and a prohibition on export to China will apply. This .y paragraph will cover “specially designed” spacecraft parts and components described in 9A515.x that have been identified in an interagency commodity classification review as warranting control under 9A515.y. Under the interim final rule, ECCN 9A515.y is not populated with specific items, but the Commerce Department is accepting requests to populate 9A515.y with specific items via the commodity classification review process.
The Commerce Department rule also will subject the “500 series” items identified above to the following provisions under the EAR:
- Controls – “500 series” items will be subject to national security, regional stability, antiterrorism, and (in some cases) missile technology controls. Export license applications for “500 series” items destined to China, North Korea, or any country that is a designated state sponsor of terrorism will be subject to a policy of denial.
- De minimis treatment – Foreign-made items that incorporate any amount of U.S.-origin “500 series” items will be subject to the EAR when destined to a country that is subject to a U.S. arms embargo. A foreign-made item that incorporates U.S.-origin “500 series” items destined to a country that is not subject to a U.S. arms embargo will be eligible for de minimis treatment — these items will not be subject to the EAR if the value of all of their U.S.-origin controlled content does not exceed 25 percent of the foreign-made item’s value.
- License exceptions – Many “500 series” items will be eligible for several license exceptions, including LVS (limited value shipments), GOV (governments and international organizations), RPL (servicing and replacement parts), AVS (now renamed aircraft, vessels, and spacecraft), and STA (strategic trade authorization).
- Under STA, exporters, particularly manufacturers of COMSAT parts and components, will be able to export their products without a license to NATO countries and certain other allies, provided that all of the conditions for the use of this license exception have been met.
- Under AVS, U.S. universities may export EAR-controlled spacecraft to countries not subject to arms embargoes, when the spacecraft are fabricated only for the purpose of fundamental research.
Implications for the satellite industry
Ultimately, the interim final State Department and Commerce Department rules are expected to reduce significantly the administrative and licensing burdens associated with the ITAR regime. In many cases, companies that now routinely must obtain ITAR licenses and/or agreements to provide COMSATs and related items, services, and technical data to foreign persons will no longer be required to do so. Although these items still will be subject to licensing requirements under the EAR, a number of EAR license exceptions will be available for certain exports and re-exports to NATO and other U.S.-allied countries.
Nonetheless, U.S. and non-U.S. companies engaged in satellite activities subject to the ITAR will need to prepare for the transition of these items from the ITAR to the EAR.
- Companies will need to assess the implications of some or all of their activities becoming subject to the EAR and determine whether such activities are eligible for EAR license exceptions with respect to hardware, software, source code, and technical data.
- Companies will need to determine the extent to which their activities remain subject to the ITAR. Even after these rules go into effect, companies still may need to grapple with the ITAR services related to satellite launches and launch failure analysis that will remain subject to the ITAR.
- Accordingly, many satellite operators and others in the industry will need to maintain their ITAR registrations and will continue to need ITAR authorizations to cover certain aspects of their operations. In addition, such companies will have ongoing ITAR compliance obligations and will need to maintain robust technology control procedures to protect against unauthorized releases of ITAR and EAR-controlled data.
- Companies should keep in mind that under the new rules the State Department will be authorized to license the export of items subject to the EAR along with items that remain subject to the ITAR, provided such items are used in or with Category XV defense articles.
- Companies will need to review their current list of existing ITAR authorizations and assess the extent to which these authorizations must be replaced with EAR authorizations. This assessment is particularly important with respect to technology transfers.
Given the scope of the changes introduced by these new rules, companies involved in satellite-related activities would be well advised to begin or accelerate planning for the transition to the EAR.